Presenting a live 90-minute webinar with interactive Q&A Environmental Indemnity in Real Estate Transactions: Allocating Risks of Potential Cleanup Costs Negotiating Key Provisions, Drafting and Reviewing the Agreement to Ensure Complete Coverage TUESDAY, AUGUST 15, 2017 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: R. Morgan Gilhuly, Partner , Barg Coffin Lewis & Trapp , San Francisco Cindy J. Karlson, Founder , Law Offices of Cindy J. Karlson , Groton, Conn. The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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R. Morgan Gilhuly Cindy J. Karlson Barg Coffin Lewis & Trapp, LLP Phone: 415.228.5400 Phone: 860.245-4922 mgilhuly@bargcoffin.com Cindy@karlsonlawfirm.com 5
I. General Principles for Contracts and Indemnities for I. General Principles for Contracts and Indemnities for Real Estate Transactions Real Estate Transactions II. The Architecture of an Environmental Indemnity III. See You In Court: Case Law IV. Practical Tips 6
General Principles #1 You cannot contract away your liability vis-à- vis the government 7
General Principles #2 As the Third Circuit said with regard As the Third Circuit said with regard to indemnities and CERCLA liability: to indemnities and CERCLA liability: “Agreements to indemnify or hold “Agreements to indemnify or hold harmless are enforceable between harmless are enforceable between the parties but not against the the parties but not against the government.” Beazer East, Inc. v. government.” Beazer East, Inc. v. Mead Corp. , 34 F.3d 206 (3d Cir. 1994) Mead Corp. , 34 F.3d 206 (3d Cir. 1994) 8
General Principles #3 For the most part, For the most part, contracts only bind the contracts only bind the parties to the contract parties to the contract and do not bind third and do not bind third parties parties – Exceptions (sometimes): Exceptions (sometimes): • Successors and assigns Successors and assigns • Affiliates Affiliates • Running with the land Running with the land 9
General Principles #4 An environmental indemnity is only as good as the assets of the party giving the indemnity Consider parent company guarantee, letter of credit, reserves, escrows, other financial mechanisms 10
Key Questions to Ask and Answer Who is giving protection? Who is giving protection? Who is receiving protection? Who is receiving protection? “Indemnify, defend , and hold harmless”? “Indemnify, defend , and hold harmless”? What is covered? What is covered? What is not covered? What is not covered? Proportional fault, or not? Proportional fault, or not? “Arising from or related to” vs. “to the extent caused by” “Arising from or related to” vs. “to the extent caused by” 11
What Kinds of Liabilities Might Occur? 12
Types of Liability 1 st Party Cleanup Economic Liabilities Losses Third Third Party Party Claims Claims Business Added Natural Voluntary Interrupti Costs Site Resource Cleanup on& Redevelo Damages Delays p-ment Gov’t Diminish Ordered ed Cleanup Property Property Toxic Tort Value Damage 13
Site Cleanup Liabilities Who is responsible – Buyer or Seller? For what? Pre-closing legacy contamination only? Pre-closing legacy contamination only? Presumptions and baselines Only government ordered cleanup? Voluntary cleanup? Cleanup of soil and groundwater only? Asbestos, lead paint, mold, drum removal, demolition? 14
Site Cleanup Liabilities What is the scope of cleanup covered? Industrial/commercial versus residential? Risked-based cleanup? Use of institutional controls permitted? (e.g. site management Use of institutional controls permitted? (e.g. site management plan)? plan)? How implemented and complied with? Deed restrictions? (e.g. for sensitive uses/site redevelopment) Who controls communications with government? 15
Third Party Claims Toxic tort claims Examples: Site workers, future occupants, offsite neighbors Property damage claims Example: Offsite neighbors Natural resource damages 16
First Party Costs and Damages First party costs and damages First party costs and damages – Site redevelopment costs Site redevelopment costs – Voluntary cleanup Voluntary cleanup – Diminution in value of property Diminution in value of property acquired acquired – Business interruption/delay Business interruption/delay – Other direct costs to buyer Other direct costs to buyer IMPORTANT : Many courts IMPORTANT : Many courts interpret standard indemnities to interpret standard indemnities to cover only third party claims, not cover only third party claims, not first party damages, costs and losses first party damages, costs and losses Draft accordingly Draft accordingly 17
Site Redevelopment Costs – Future owners may incur Future owners may incur added costs beyond gov’t added costs beyond gov’t ordered cleanup ordered cleanup • Excavation in connection with Excavation in connection with redevelopment/construction redevelopment/construction • Disposal of contaminated media Disposal of contaminated media – Example - parking garage Example - parking garage • Cost of studies and hazmat Cost of studies and hazmat contractors contractors 18
Vapor Intrusion Liabilities Vapor intrusion into buildings Investigation and testing HVAC control HVAC control Engineered vapor mitigation systems Installation and long term O&M Who pays? Who controls? Who is liable to the government? To occupants? 19
Part II: The Architecture of an Environmental Indemnity 20
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