90    EVALUATION OF CONTAMINATION IN PROPERTY
TRANSFER SITUATIONS
Gary F. Lindgren, Consulting Services Manager
Heritage Remediation/Engineering, Inc.
Indianapolis, Indiana 46251
INTRODUCTION
We have heard of the importance of site assessments in real estate transactions. The nature and
purpose of Phase I and Phase II assessments have been explained. Our purpose here is to discuss the
technical aspects of moving ahead in the acquisition or divestiture of an industrial property where
contamination is present. In other words, how to manage the technical aspects of "doing the deal" in
spite of environmental problems.
My basic premise here is that most manufacturing facilities have caused some measurable environmental impact. The consensus of what constitutes an "acceptable" environmental impact, from a
regulatory standpoint, is moving towards lower and lower levels of contaminant concentration.
However, the EPA's proposed Corrective Action rulemaking offers some hope of reason on the EPA's
part.
There is definitely a need for caution with respect to the environmental risks and liabilities associated with business transactions involving real estate. The impact of environmental laws on real estate
transactions has resulted in a variety of affected parties, each with their own special perspective.
These parties include, of course, both buyers and sellers. Other parties include landlords and tenants,
real estate developers, brokers, lending institutions, regulatory agencies, and the consultants and
attorneys employed by the various parties.
As a prelude to discussing the technical issues involved in transfers of contaminated sites, I want to
summarize the perspectives of the various parties involved. In the following summary descriptions, I
have attempted to identify those key aspects related to environmental risks and liabilities. These
perspectives are important for many reasons, including the fact that real estate assessments can be
required by or be performed on behalf of any of these parties.
The buyer is evaluating two types of risks. The first type of risk is that involved with the traditional
business aspects of the property. The second risk, of more recent vintage, is that involved with the
environmental aspects of the property. The buyer's inclination is to minimize environmental risks
either by purchasing properties that have a "nature preserve" level of risk, or by requiring the seller to
indemnify the buyer and/or to remediate the property to "nature preserve" levels of cleanliness.
The seller wants to get the maximum price for the property, often without spending any monies to
remediate or investigate the site. Sellers typically want to offer the property "as is," with appropriate
hold harmless clauses. Sellers often place the burden of identification, investigation, and evaluation
of any environmental problems or impacts on the potential buyer. However, who ultimately pays and
how they pay for investigatory and remedial costs in a successful property transfer is largely a
function of the relative bargaining positions of buyer, seller, and lender.
Attorneys for both parties are involved in protecting their client's interests. The attorneys grapple
with the nature and extent of the representations and warranties. Other legal issues include the
allocation of risks, the time frame and extent of any such allocations, and the division of liability and/
or costs of remediation for both known and unknown environmental problems.
Lending institutions require assurance that the property is adequate collateral for the loan. In other
words, the value of the property must be sufficient to serve as adequate collateral after the costs
associated with any necessary remediation are subtracted. Financial institutions have learned the hard
way that property can have a negative market value, in that the costs of remediation can exceed the
price the property would bring, once cleaned. Foreclosure is not a viable option for such properties.
Regulatory agencies are becoming increasingly involved with real estate transactions. Statutory
requirements regarding the environmental aspects of such transactions are becoming more common.
46th Purdue Industrial Waste Conference Proceedings, 1992 Lewis Publishers, Inc., Chelsea, Michigan 48118.
Printed in U.S.A.
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