Realtor Roundtable – Environmental Issues

We asked our panel of expert realtors to comment on the all-too-common challenges facing buyers and sellers when it comes to environmentally affected properties.

Buyer Beware

When it comes to Buyer Beware - caveat emptorenvironmental issues, it is imperative to assemble a team that will watch out for your interests.  That includes your realtor, an attorney with strong environmental expertise, and if necessary, a Licensed Site Remediation Professional (LSRP).  Unfortunately in New Jersey, when you’re considering commercial property, there’s a high probability that the property will have some sort of environmental issue – whether it’s actually on the property or nearby .

What is my legal exposure if an undetected issue is discovered after I have purchased the property?

Magnifying-GlassIt all depends on how diligent you were prior to the sale.  In New Jersey, there’s an “Innocent Purchaser Defense” which essentially says you are innocent and not liable for clean-up costs if you’ve met the due diligence requirements established by the DEP. These requirements include the purchaser conducting a preliminary investigation into the prior use/s of the property and historical background to determine if there could be contamination that would require remediation.

If you don’t take these precautionary steps, you could be liable for past contamination and subsequent remediation.  Also, if you’re not protected by the Innocent Purchaser Defense, you have the right to sue the past owner to recoup your remediation costs if you feel the environmental issues were not disclosed.  But clearly this is a less desirable process than knowing what you’re getting before you purchase the property.

Can I get financing if there is an environmental problem?

Yes, but it’s very challenging.  The lender will expect your environmental consultant to identify and quantify the problem and submit a State-approved Environmental Remediation Work Plan Financing(ERWP). Then they’ll ask for a substantial amount of escrow to make sure the plan is completed.  Frankly, most attorneys will advise against buying a property that needs remediation.

There’s too much risk for most conventional lenders – you’ll have to find a lender that specializes in these type of properties and even then, it will depend on the nature of the contamination and the ultimate use of the property.

You may have to agree to a deed restriction, which will put limits on how you can use the property, such as no residential use, no basements, etc.

If a clean-up has been promised, how do I know that it has been done?

This is where your attorney and environmental consultant come in.  You need them to protect your interests and guide you through the mine field. Ask for all filings on record with the DEP and the LSRP who performed the remediation. Have an LSRP of your choice review everything and give an opinion as to the status of the cleanup.

Can contaminated property be used for new construction is the cleanup is cost prohibitive?

Possibly, but not likely.  For most construction you have to dig footings and install underground utilities and once you dig in an environmentally challenged site you become responsible for disposing of any contaminated soil. The DEP may allow the site to be encapsulated and new construction built above the contamination which may create a permanent deed restriction on the property.

How do I choose the right environmental company?

If you’re going to a bank for financing, they will have a list of approved consultants that they have vetted to worked with. Once you receive the list, research then to get their qualifications and cost estimates.

right-wrongIn addition, before deciding on a company, you should know what sites the company has worked on already and what the outcomes were.  You should also know what type of cleanups they specialize in, do they use subcontractors or is all work done inhouse, etc. Get the budget and timeframes in writing.

If a bank is not involved yet, ask your environmental attorney to recommend a firm.  They are up on the current laws and know what firm gets the best results.  You also want to make sure the firm has the right insurance to cover any potential problem that may occur.

Another thing to consider, when choosing your consultant, is to make sure that they have experience in your particular issue or at least something very similar. Get three recommendations from your commercial broker and three from your attorney.

When you’re doing your research, make sure to speak with others that have used a company recently.  There’s an explosion of environmental companies in the market and some are unscrupulous.  They’ll blow the environmental contamination issues way out of proportion.

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Whether you’re buying or selling, renting or leasing, if you need financing to get the deal done, UCEDC’s loan programs may be the answer. Speak to one of our loan officers today to learn more about our financing options:  $500 to $5.5 million, with rates as low as 6.114% as of December 2022 and as little as 10% down. Call to speak to one of our loan officers today at 908-527-1166.

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