How concerned should you be that a recognized environmental condition has been identified on a commercial property you are considering purchasing?

Should you be concerned if a potential soil vapor encroachment condition has been identified on an adjacent property? On the other hand, if you are the current owner, should you resolve any open regulatory spills and leaking underground oil tanks prior to selling the property, or let the buyer deal with it? If not you, will your buyer's prospective lender be concerned and the deal "killed"?

Environmental investigations result in preparing various reports, including:

These investigations are complex and if they are not properly evaluated by professionals, can result in unknown liability for both the buyer and seller. Many times, it takes an Attorney Review Letter (ARL) to synthesize these reports and make sense of the information for other parties with an interest in the transaction — lenders and insurance underwriters, for example.

Due to the inherently technical nature of environmental reports, prospective purchasers of property subject to such investigations can be intimidated by the deal. Therefore, sellers of real estate also use ARLs to provide comfort to lenders, insurance underwriters and prospective purchasers when the investigations conclude that there is a relatively low environmental risk with the property. ARLs can explain, in lay terms, the various risks relating to the property or facility under consideration for a loan or purchase.

These letters explain why the environmental problems described in the report will not — when such a letter is prepared primarily for the lender, for example — significantly impair the value of the collateral for the loan, nor will the cost to remediate the problem impact the borrower's ability to make its payments on the mortgage loan.

Why is this so important? Prospective purchasers may move forward on a deal with a certain amount of risk, if the potential reward in owning, managing and developing the property, enhancing both income and the property value, is great enough. However, the tolerance of lenders for risks relating to getting their money back is notoriously low, because there is little potential upside to the lender to encourage the taking of risks: Whether there's a modest return in managing the property effectively, or an outstanding return on investment, the loan is repaid equally.

Thus, such letters must be prepared with great care, so as to be honest and realistic, but above all to conclusively resolve whatever concern the intended recipient of the letter may have.

The attorneys at Periconi, LLC, have the experience and know-how to help clients get the benefits of such letters. Our attorneys can review your environmental due diligence reports and provide clarity as to the findings, recommendations, and conclusions of those investigations.

To Discuss An Attorney Review Letter Regarding Environmental Issues And Property Acquisition, Contact Us

Contact Periconi, LLC, and speak with one of our attorneys for more information about Attorney Review Letters. Call 646-733-4487 or email us through this website to schedule a consultation.