EP 011 – Residential and Commercial property for property conveyance (Part Two)
MARISA: All right. Hi, everybody. This is Environmentally Speaking. I am Marisa Desautel an environment attorney with a few decades of experience.
CLARICE: Hey, y’all. I’m Clarice. I’m coming in with your questions and topics to talk about. And today is officially our part two commercial conveyances.
MARISA: Sounded like a sneeze.
CLARICE: Extra excited.
MARISA: Yeah. That’s right because the last episode we talked about what happens typically in a residential conveyance, right?
MARISA: Okay. So the commercial piece is less tricky which is surprising, right? You’d think with a commercial [inaudible].
CLARICE: Yeah. I figured it would be worse.
MARISA: More assets involved, more opportunities for liability, yeah. Wait, what?
CLARICE: I thought it was going to be more complicated.
MARISA: It’s not. I think with the residential conveyances there’s more moving parts so, you know, financing, and. There’s financing with commercial conveyances, too, but traditional lenders I think are more regulated than your commercial lenders. But in any event, so let’s say you own a company or business and you are looking to purchase real estate. The reason that I would get involved is not because I’m a commercial real estate attorney, but I do environmental law and land use law. So that means before you buy a property you want to make sure it’s not contaminated, right? That make sense?
CLARICE: Yeah. That would make sense.
MARISA: But you’d be really surprised at how many companies will go forward with buying a commercial property and then find out that it’s contaminated. And then it’s too late because as we talked about in an earlier podcast the statute that applies to environmental contamination has a provision for strict liability in it which means if you touch it, if you’re in the chain of title, you’re responsible for the cleanup.
CLARICE: I’m surprised more people don’t think about hiring an environmental attorney to kind of avoid it. Like they don’t want to get stuck with a hot potato.
[0:02:29] MARISA: Yeah. Yeah. And kind of like with the residential conveyance where the traditional financing options are a lending institution, if you’re buying commercial property with cash then you’re not regulated. You don’t have to go through the same steps that you do if you’re using a traditional lending institute. And that step is called a Phase 1 Environmental Site Assessment. So if you’re a company and you’re getting commercial financing, the bank essentially will require you to hire an environmental consultant to perform something called a Phase 1 Environmental Site Assessment. So if you ever heard someone talking about a Phase 1, that’s what this is. It’s a study and analysis of the property and its historical uses.
CLARICE: Will people get to skip this step by using cash because there’s no overseeing body ensuring that they do this kind of testing?
MARISA: Yeah. Yeah. I mean, they should do it anyway. It’s called due diligence. It’s part of the due diligence process in a commercial transaction. But a lot of people think that they don’t need to do it. For example, let’s say they’re getting a really good deal on the property or they’re buying it from someone they know, then they don’t think like, oh, man, this property is contaminated and I’m going to inherit this problem once I’m on the chain of title. They just move forward with it. I can’t tell you the number of clients I’ve had come in under those scenarios. A commercial deal with a handshake is not what it used to be. Yeah.
CLARICE: I mean, now you’ve sunk all that cash into this site or space and you’re going to have to sink in so much extra.
MARISA: Yeah. Yeah. And it takes a long time to get through contaminated property cleanup and the government is not going away. The government will always outlast you, so you have to either agree to work with them or file for bankruptcy. Those are really the only two options I’ve seen that come out of these cases. But it takes a really long time. Like you might be in it for ten years, 20 years with the cleanup.
CLARICE: Oh, that’s a super bummer. See our episode on super fun sites.
[0:05:00] MARISA: Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. So the phase one is very important and if it turns out that there is contamination on your property your consultant should and will find it and advise you prior to the purchase of what the liability and risks are. And where I come in is I review the phase one and I’ll take a look at other materials and try to craft either an escrow agreement or indemnity agreement. More often than not it’s both of those items and try to figure out a way to flip the liability between the previous owner and the buyer. And on the other side, if we represent a seller we have to disclose the environmental contamination and make sure that the transaction is put together appropriately so that future claims can be dealt with. So totally different from residential.
CLARICE: Yeah. So in that case if you’re representing the seller would adequate notice help relieve them of some of that liability? Is honesty the best policy?
MARISA: Honesty is not only the best policy, but it’s the law. You have to disclose anything that you have knowledge of. And if you fail to disclose and you get sued and the other party can show that you had knowledge, it’s all over. So you absolutely want to disclose anything that you know about the property.
CLARICE: Look at that. Environmentally Speaking coming in with your Veggie Tales morality lesson. So what else do we need to know about commercial conveyances? Actually I’m surprised at how much simpler this feels.
MARISA: I know, right. Surprising. Well, the devil’s in the details because you said it’s one report. It could be hundreds and hundreds of pages. So while there’s only technically one step to go through for environmental due diligence, it can be very expensive. And then the next step I didn’t mention, if you get beyond a phase one there’s something called a phase two and then sometimes a phase three.
But the phase one is really the due diligence portion of the process. The phase two has more to do with remediation and additional studying, taking additional soil samples, additional groundwater samples, coming up with a remedy. And then once you engage government with the cleanup, there’s a whole other litany of the types of documents and reports that you have to file with the government. But the phase one and the phase two are really what you need to know about the commercial real estate.
[0:07:53] CLARICE: Again, I’m still stuck on this seems pretty clear cut and it sounds like there are some laid out steps to follow. And I’m very much used to the, it depends, answer.
MARISA: Yeah. Yeah. No. Environmental science is good like that. Science generally is good like that, right?
CLARICE: There’s comfort in structure. I like it.
MARISA: Yeah. Better than law school.
CLARICE: Well, a lot of things are, but. All right. That seems pretty cut and easy. We’re coming in with a short, easy, explained, clear episode for you. Next week I promise to pick something confusing. I’ll make up for it.
MARISA: Great. Awesome. Well, thank you.
CLARICE: All right. Well, thank you, everybody. Feel free to submit your comments, topics, things that you want to hear us talk about to Help@DesautelESQ.com. Or feel free to catch us on social media at DesautelESQ. All right. We’ll see you next week.