Environmental contamination of property is a factor that is
impacting real estate transactions and is responsible for a change
in the way contracts for commercial real estate are being written.
"Not that many years ago, before closing on a real estate
transaction, you had to make sure the zoning was proper and the
financing was in order," said Jim Austin, vice president and
resident manager for Coldwell Banker Commercial Real Estate
"Now, there is one more contingency that must be dealt with on
every sale. I cannot imagine a commercial property changing hands
without an environmental review."
Contamination of property can result in devaluation of property
and poses potential liability for lenders and owners, said Mark
Schwartz, attorney at law.
In the future, there will continue to be a heightened amount of
scrutiny by all parties involved, said Michael Laird, a director of
the law firm of Crowe & Dunlevy. In many cases, environmental
issues can be the most critical financial issues involved in a
mortgage lending transaction.
"The overall impact is that the cost of doing business in real
estate is going to go up," said Laird. "The not-so-hidden carrying
cost of cleaning up environmentally hazardous contamination will
affect everybody who works in commercial real estate. The cost of
operations increases and the asset value can decrease because of
Contracts for the purchase or sale of real estate are changing
as sophisticated buyers are inserting provisions that make the
buyer's obligations to perform contingent upon there being no
contamination found in an environmental impact study that is often
paid for by the seller, said Laird.
The two extremes in the types of contracts are that the seller
provides an environmental report that is acceptable and shows no
contamination or the buyer purchases the property as is, regardless
of any environmental problems that may be out there. The second
example is pretty rare with the sophisticated purchaser, he said.
"Obviously, the safest position is not to get involved in real
property at all," said Laird. "It is amazing the extent of the reach
of the environmental tentacles. The problems have been ignored too
long and now everyone is being brought to the table to pay the
Awareness of the problem has increased dramatically over the
past five to 10 years with the enactment of recent federal and state
legislation, said Laird. There is a heightened awareness of the
problem among people who deal in commercial real estate including
lenders, owners and developers.
The number of people liable for cleanup varies depending on the
type and extent of the hazard. Parties in the chain of title are
usually the prime focus of liability under applicable laws, although
others may also be liable if they are the source of the
"We have noticed a lot of changes in contracts for commercial
real estate regarding environmental studies and, if things are found
that are detrimental, it could be a reason for canceling the
contract," said Eric Offen, executive vice president of operations
for Lawyers Title.
"We have not seen any change in the residential contract form
because we give coverage to the lenders on residential transactions.
"Another thing we have noticed is that many of the testing
companies that do environmental studies come into our office and
review abstracts to determine the prior owners. Oklahoma is way
ahead of other states because we have abstracts."
The brokers and real estate people who put these deals together
are affected more than title companies by the environmental
problems, he said. Once it gets to the contract stage, those issues
have normally been addressed and resolved.
There are numerous types of environmental contaminants that
affect real property including sludge pits, polychlorinated biphenyls
(PCBs) and disposal of toxic waste or chemicals that can result
ground water contamination, said Schwartz. …