When a lender lends money for a real estate transaction, the lending company must consider potentially hazardous environmental conditions in or on secure land. Lenders often enter into environmental compensation agreements that define the risk distribution of these conditions. These compensation agreements allow the parties to assign risks, specifying at the beginning of a transaction that a party may, for example, be held safely for all environmental commitments related to heritage. But according to the First Court of Appeal, the periods of use of the broad language of the boiler platform have disappeared in these compensation agreements. On the contrary, courts are now invited to review the language of environmental agreements to determine the validity and extent of possible compensation. A recent decision – VFC Partners 26, LLC v. Cadlerocks Centennial Drive, LLC – emphasizes the need to use specific language and set explicit limits on the extent of any compensation. One of the most important ancillary documents for commercial real estate loans is environmental compensation. Under national and national environmental legislation, a property owner is strictly responsible for eliminating contamination by hazardous substances on such land.
The other important consideration in the allocation of environmental risks is of course insurance coverage. Most companies have one or more liability guidelines to protect themselves from the different types of claims that may arise in their business activities. However, most modern general liability guidelines exclude some, if not all, claims for pollution damage or damage, including the cost of repair. When a company has commercial non-life insurance to cover remediation costs, this coverage is often subject to limits that do little to relieve essential releases of pollutants. Liability insurance can be used to support the allocation of risks associated with compensation agreements between lenders and borrowers. On the market, there are many types of environmental insurance products – each with its own pros and cons – and these products can often be adapted to create specific coverage packages based on the risks of a particular property. The allocation of risks through a combination of a compensation agreement and specialized environmental insurance allows the parties to have flexible and creative protection against environmental debts. VFC Partners has made it clear that language must be carefully checked with respect to key environmental liability risks and that it must be used specifically for the explicit allocation of these costs. At the beginning of a transaction, the parties should conduct a thorough analysis of available and appropriate environmental coverage. Environmental compensation agreements can and should be creatively developed to meet the needs of each transaction, as the use of uniform environmental compensation language entails unexpected costs. It goes without saying that the expectations and compensation agreements of the parties should vary depending on the scope and extent of the agreement, the nature and size of the property, the historical and current exploitation of the property and the existing insurance coverage of the parties. Following the decision of VFC`s partners, lenders should ensure that environmental compensation agreements express the hope that a borrower will compensate a lender for the costs resulting from the failure of the environmental impact assessment resulting from a forced execution or a decision to close or close.