Environmental Issues Loom Large Among Commercial Property Transactions

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Green-Building

ENVIRONMENTAL CONTAMINATION is fast becoming a contentious issue in the 21st century. As such, it is not surprising this is becoming one of the key factors in property transactions.

Sale contracts

All aspects of contamination and compliance with environmental laws have emerged as an issue in negotiations between vendors and purchasers.

Generally speaking, a vendor will aim to sell a property ‘as is, where is’. Accordingly, the vendor’s preference would be for the purchaser to rely on its own enquiries; and therefore, buy the property in its present state of repair.

This would mean the purchaser buys the property subject to any pre-existing contamination, or non-compliance with environmental laws.

The difficulty for you (as a purchaser) is that procuring the necessary environmental reports to ascertain whether the property is contaminated, or does not comply with certain environmental laws, is a time consuming and costly exercise.

Nonetheless, the consequences of not identifying any pre-existing contamination can be an even more expensive exercise — as the contamination may prevent you from using the property for your intended purpose.

From a purchaser’s perspective, you should aim to purchase the property with open eyes.

Accordingly, you need to satisfy yourself with respect of any potential pre-existing contamination prior to signing the sale contract.

An alternative approach for a purchaser is to include in the sale contract a requirement that the vendor be responsible for any pre-existing contamination. However, you will find most vendors won’t wish to have any ongoing obligations in respect of their property.

Leases Agreements

Contamination

Most common for commercial leases now include provisions relating to contamination and compliance with environmental laws. And generally speaking, under a commercial lease, a tenant is required to comply with all laws in respect of its use and occupation of the premises.

However, it is becoming increasingly common for this obligation to extend to compliance with environmental laws.

Tenants should be aware of such obligations, as they may require them to remediate pre-existing contamination; and this may result in significant costs.

Similarly, it is becoming increasingly common for commercial leases (especially industrial leases, where there is a higher risk of contamination) to include a requirement that the tenant remediate any contamination caused to the premises.

While this is a reasonable position, tenants should ensure the particular clause does not extend to any pre-existing contamination on the basis that this should be the landlord’s responsibility.

Therefore, as a tenant, you should ensure the lease requires the landlord to remediate any pre-existing contamination — as this may negatively impact on your use and enjoyment of the premises.

Green Leases

Green lease provisions are becoming increasingly common in commercial leases, especially commercial office leases.

A green lease simply contains and embraces environmental objectives within the lease. And achieving these objectives can take various forms.

One example is the inclusion of a simple statement in the lease requiring the tenant to take environmental considerations into account when occupying the premises.

Another example is the inclusion in the lease of a requirement on the tenant to achieve a certain environmental rating; or to assist the landlord achieve its target environmental rating.

Ultimately, the inclusion of these provisions is subject to the negotiation of the parties. As such, landlords and tenants should ensure they are aware of their respective rights and obligations under these provisions.

Bottom Line: There is no doubt that environmental considerations are increasingly becoming one of the major issues to be considered in the context of sale contracts and commercial leases.

All parties should ensure that due consideration is provided to these issues, and that they are aware of their obligations under the relevant agreement.

Furthermore, you also need to ensure you consult with your solicitor to ensure appropriately-worded provisions are included, to reflect the agreement between the parties.

Xenos

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