Commercial Investment Real Estate July/August 2016

LEGAL BRIEFS Watch Your Language Avoid 5 common mistakes in contract environmental clauses. For decades, I’ve advised ﬁ nancial and strategic commercial real estate buyers and sellers in connection with the environmental aspects of their transactions. I review scores of acquisition agreements each year. Objectives of the parties are oftentimes quite similar. • Buyers want to leave responsibility for his- toric waste disposal with sellers, or sellers want to have buyers expressly assume that responsibility. • Th e parties want their agreement to be all- encompassing with respect to the appor- tionment of environmental liabilities between them and extinguish common law or statutory causes of actions that might otherwise exist. July | August | 2016 • They want to define the extent of the cleanup obligations of the party who has assumed those obligations and assure those obligations remain only with that party. • Th ey want to defi ne how long their contrac- tual remedies remain viable. While contract language divvying up envi- ronmental liability has generally improved over my decades of practice, there are fi ve common mistakes that I still frequently see. Five Pitfalls 1. Because environmental liability can be strict, retention or assumption of responsibility for “violations” of law may not apportion hazardous substance release liability. Parties agreeing on language where sell- ers retain or buyers assume responsibility for pre-closing “violations” of environmen- tal law may be unaware that such language may not apportion liability risk for haz- ardous substance releases. For example, in a case relating to cleanup of PCBs in river bed sediments, the buyer agreed to assume liability for pre-closing violations of envi- ronmental law. In construing this contract language, the court noted that, at the time the PCBs were released, their release violated no environmental or pollution control law. Th e court ruled that the contract language did not mean that the buyer assumed liability for cleaning up the contaminated sediments in the river bed. 2. An “as is” clause will be suffi cient to extinguish a buyer’s common law rights of action against the seller for environmen- tal conditions, but it won’t extinguish the buyer’s statutory rights. Real estate purchase and sale agreements oft en include as-is clauses to eliminate the buyer’s right to bring claims against the seller based on real property conditions. Courts have held, however, that as-is clauses do not curtail the buyer’s statutory rights to seek recovery of cleanup costs. If it is the parties’ intent to extinguish all buyer’s rights against the seller, then they need to use diff erent lan- guage in addition to the as-is clause. 3. Because the degree of cleanup dif- fers for industrial, commercial, and resi- dential property, it may not be enough to make getting a government agency’s Commercial Investment Real Estate f by Tom Mounteer

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