Publications

Managing Environmental Liability in Tough Economic Times

By Joseph G. Maternowski

Economic pressures are forcing many businesses to put their real estate on the market, in order to free up cash and streamline operations. But especially where industrial operations or manufacturing have occurred, real estate may be affected by contamination. Buyers, sellers, lenders and investors all should be concerned about potential exposure to liability for the costs of environmental cleanup.

Due Diligence is Imperative. Environmental cleanups can be costly. To avoid liability, potential purchasers, investors and mortgage lenders should thoroughly investigate the environmental condition of the property in question. Even existing lenders who are considering foreclosure should understand the condition of real estate prior to taking title or possession.

We assist clients in obtaining and reviewing a Phase I Environmental Site Assessment        ("Phase I"). A Phase I identifies any "recognized environmental conditions," and is a necessary step to permit a real estate purchaser to qualify for "innocent purchaser" status under federal and state environmental laws.

The discovery of pollution usually does not mean that a deal cannot proceed. Most contaminated properties can be put back into productive use, through the use of liability assurances available under federal and state environmental laws. We help clients avoid or limit environmental liability through negotiation of indemnification agreements and by assisting in developing cleanup plans that satisfy governmental requirements for liability protections. Federal and state grant monies may be available to aid in the process.

Avoiding Business-Related Problems. Many real estate transactions also involve the purchase of a related business. Companies in financial trouble often may neglect compliance with environmental regulations and permits. This may cause the purchaser of the business to incur liability for civil penalties for alleged noncompliance. A business purchaser should consider a thorough pre-purchase environmental compliance review of compliance issues to minimize these concerns.

Proceed - But With Caution. Tough economic times often result in bargains in commercial real estate. But potential buyers, investors and lenders need to be wary of environmental liability exposure. Assembling a team of qualified professionals - attorneys, consultants and advisers - is critical.

(April 2010)