In practice, the economic benefits of a transaction often outweigh the environmental impacts. In doing so, the environmental liability of one of the contracting parties can have a very negative impact on the economic benefits of the transaction.
Business partners should therefore not take this aspect of the transaction lightly. Contractual arrangements for environmental liability and the possible contractual transfer of certain risks to one of the parties may be an effective solution.
Obligation to remedy environmental damage
The first of important environmental obligation is to remedy environmental damage. This obligation is specific because it does not fall within the sphere of administrative punishment, but it is on the borderline between private and public liability. No fault is required for this obligation to arise; it is an absolute restitution obligation. Another specific feature is that this obligation also passes to the successor in title. Therefore, the transaction could cost the buyer very dearly indeed.
To ensure the buyer is affected as little as possible by this transition, it is advisable to include several practical provisions in the contract. In particular, the buyer should negotiate an obligation on the seller to indemnify or reimburse the buyer for remedial measures. The seller's obligation to pay a contractual penalty is also a practical solution.
However, even in this case, the seller should not agree to these commitments unconditionally. Under such an obligation, it could be that the seller would be required to compensate the buyer for damages, cover expenses or pay a contractual penalty even if the seller had nothing to do with the environmental damage caused. It is more than appropriate to include in the contract a statement by the buyer that he or she is familiar with the ecological condition of the land and a possible waiver of the seller's liability associated with the remediation of ecological damage. Another option is tolimit the seller’s contractual obligation to compensate the buyer for costs incurred, either by setting a maximum amount of claims or by modifying the duration of the limitation period.
Administrative and judicial punishment (penalties)
Environmental liability for offences, as well as the aforementioned obligation to remedy environmental damage, arises regardless of the fault of the liable person. Thus, it is also strict liability, which in certain cases may also give rise to negative consequences for the buyer of real estate. If proceedings concerning the offence are initiated after the transfer of the property, the buyer is at risk of being sanctioned for the offence. Here again, it is therefore advisable to negotiate with the seller an obligation where the seller is required to remedy any damage that may arise as a result of such an offence.
An exception to the aforementioned is the principle of passing on the liability, which applies unconditionally to legal persons and in the sphere of administrative proceedings to entrepreneurs (individuals) as well. The legal fact that is decisive for the transfer of liability of legal persons is legal succession. The case-law shows that in the case of property transactions, it concerns the transfer of a business enterprise or its creditworthy part.
Therefore, whether the liability is strict or based on fault, the buyer may seek recourse against the seller for any loss resulting from the seller’s infringement (and it is recommended to specifically stipulate this in the contract). Conversely, from the seller’s perspective, it is preferable to exclude specifically recourse claims for damage caused by the transfer of liability.
Given the a priori unknown recourse claims of the buyer against the seller, it is in the seller’s interest to limit such claims here as well, either by limiting the amount of mandatory compensation or by shortening the limitation period.
In a broader sense, environmental liability could result in civil liability as well. For instance, the obligation to compensate for damage caused by the degradation of neighbouring land or to compensate for damage to health caused by contamination of environment. The liability to compensate the damage or the non-material damage lies primarily on the person who caused the damage or had control over the unlawful situation. Therefore, it is in the seller’s interest to transfer the consequences of the obligation to the buyer, especially by negotiating an obligation for possible compensation.