Monday, June 20, 2011

CERCLA Liability in Real Estate Transactional Documents

Jose R. Allen has recently posted a blog about CERCLA liability in real estate transactions for the American College of Environmental Lawyers. Transactional lawyers are now very aware of the need to address environmental liability issues in the connection with the purchase and sale of commercial and industrial properties.

I’ve mentioned the American College of Environmental Lawyers website before. Allen blogs about a recent federal district court decision, Stimson Lumber Co. v. Int'l Paper Co.,CV 10-79-M-DWM-JCL (D. Mont. 2011), that “illustrates the importance of not only including provisions in purchase and sale agreements for indemnity as to pre-closing conditions, but ensuring that such provisions unambiguously reflect the parties’ intentions regarding CERCLA statutory liability”.

The Stimson Lumber court held that the purchaser of industrial property could sue the seller for CERCLA costs “even though the period of seller's contractual indemnity for environmental claims had expired under the terms of the sale contract.”

All transactional lawyers drafting indemnification provisions allocating liability for hazardous waste contamination should pay close attention to the lessons from this case. The Stimson Lumber decision tells us that words matter and environmental liability and indemnification provisions in real estate contract must be, as Allen writes: “either very broad and quite absolute in the allocation of future liabilities or very specific and complete in reflecting sometimes subtle distinctions between indemnity for and assumption of liability.”

The only way to effectively protect clients in these cases is to first think through and then draft very clearly and carefully.

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