Commercial Real Estate Sales Contracts: Drafting Environmental Reps, Warranties, and Indemnities for Buyers and Sellers

Description

With ever-increasing federal and state environmental regulations imposing strict standards and penalties, buyers and sellers of commercial real estate must anticipate and mitigate potential environmental risks associated with a deal when negotiating and drafting the PSA. Crucial provisions in any PSA are environmental reps, warranties, and indemnities; and given the potential liability for buyers and sellers, boilerplate language should be avoided.

Common reps and warranties include, among others: (1) the usage of hazardous materials on the property is in compliance with all applicable laws; (2) the facilities have the necessary permits and authorizations; and (3) there are no present or threatened hazardous material releases in violation of any environmental law affecting the property. Although these reps and warranties appear straightforward, disputes often arise related to breaches of these provisions that result from poor or vague drafting.

Where the seller may breach an environmental rep or warranty, a well-drafted indemnification provision may provide the buyer with indemnity although there may be certain statutory limitations (e.g. CERCLA). Therefore, counsel should understand key negotiation and drafting considerations for these provisions to minimize the risk of breach and liability for their clients.

Listen as our expert panel guides real estate practitioners through drafting environmental reps, warranties, and indemnities for commercial PSAs. The panel will discuss pre-drafting considerations and offer best practices for comprehensively drafting these provisions to best protect clients--whether buyers or sellers.