Five Magic Words for Avoiding Environmental Liability – A Seller’s Perspective

Sellers of land and businesses can find themselves in the legal cross-hairs for environmental contamination, even after closing. This can be true whether the contamination was known at the time of closing or discovered afterward. Sellers should therefore consider taking a straightforward and clear approach to addressing this risk when negotiating the deal. This will pave the way for instructing your lawyer to add key language to the sale contract, which is one of the best ways to protect you the seller. Here are FIVE magic words (S.I.P.A.R.) to hit in your sale contract:

1. Share: Provide any disclosable environmental information you may have to the purchaser. If you are not sure what to share, get advice. If you don’t help the buyer to understand a known risk, they may blame you if they miss it when doing their own investigations. Keep a record of what you share, and confirm your disclosure in the contract.

2. Investigate: Afford the buyer the opportunity to investigate the environmental condition of the property. Ensure it is on them to do so and that you allow it to happen. Then, make clear in the contract that they did or had the opportunity to investigate.

3. Promises: Don’t make any. Ensure that in your contract you make clear you are not making any environmental representations and warranties. In doing so, confirm that any information and material you shared are not your opinions and are not reps and warranties. You are not an environmental expert after all.

4. As Is: Okay, two words. State in the contract that the sale is “as is,” but don’t rely on this phrase alone. It is jargon after all. Follow it with a clear statement that the buyer accepts all environmental risk, whether known or unknown.

5. Release: Seek a release from liability from the purchaser. The objective is to confirm that the purchaser will not claim against you in the future for environmental loss or damage. If you’ve addressed this during negotiations, it should not come as a surprise. Similarly, you may seek an indemnity which goes further than a release by allowing you to seek recovery from the buyer if a claim is made respecting the environmental condition of the property. Indemnities can sometimes make sense in the context of a specific deal, for example when the buyer receives a price reduction in exchange for accepting all environmental risk going forward.

The above language – the five magic words – can serve as a guide to papering a deal where environmental issues are at play. They should also be kept in mind up front when negotiating the sale terms and the price. But remember, every deal requires different considerations, particularly because every property is unique. To sharpen your approach based on the transaction in front of you and the actual risks it presents, consult with an environmental lawyer and potentially an environmental engineer