December 16, 2012 - When buying or selling commercial property, it is prudent to determine whether there are potential environmental issues lurking under the ground. Purchasers often hire consultants to provide Phase I environmental assessments of the property they intend to purchase. A Phase I survey identifies environmental concerns such as the presence of underground storage tanks, soil or groundwater contamination, asbestos, lead paint, and radon. To complete his/her report, a consultant makes a visual inspection of the land, reviews public environmental records, and talks to current and past owners about their environmental practices.

Should a Phase I report reveal potential environmental liabilities, a Purchaser should request a Phase II survey, which includes soil and groundwater sampling for pollutants. The Phase II investigation will require the consultant to dig into the property, and the purchase agreement should grant access to the land for this purpose. Once potential issues are identified, the parties can negotiate costs and liability and explore options to shift or allocate risk.

Generally, the Purchaser and Seller can negotiate who pays for costs of remediation, timing, environmental cleanup costs, and the state of the property to be purchased at closing. The Seller may also indemnify the Purchaser against latent environmental liabilities. In addition, the parties may purchase pollution insurance to shift the risk of unknown pollutants to an insurance company. The pollution insurance may cover damages for bodily injury, property damage, business stoppage expenses, attorney fees, and cleanup costs. Generally, however, this type of insurance requires a large initial premium payment.

When environmental issues are identified, the parties should seek legal counsel to advise them on these issues, as well as state and local environmental laws. The parties may be required to report results of environmental surveys to state and/or local regulatory agencies. In some cases, a state agency can provide the assurances needed for a concerned Purchaser.

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