Contaminated sites represent a risk that should not be neglected, especially when acquiring commercial real estate. If they are not recognized in time or even ignored, this can lead to high costs. But who pays for these costs? And how can I, as the seller of a property, indemnify myself against possible later liability claims? The following legal advice will deal with these questions.
What are contaminated sites anyway?
Contaminated sites are defined by law in §2 of the Act for the Protection against Harmful Soil Changes and for the Remediation of Contaminated Sites (Bundesbodenschutzgesetz: BBodSchG), explains attorney Sascha C. Fürstenow. Accordingly, these are “harmful soil changes”, §2 (5) BBodSchG which can be caused by waste or environmentally harmful substances, §2 (5) No. 1 u. 2 BBodSchG.
Examples of contaminated sites in the soil are:
War material such as bombs, grenades or ammunition, old gasoline tanks or other tank installations, industrial and commercial waste such as chemicals, oils or heavy metals, agricultural waste such as fertilizers or pesticides. In Berlin and surroundings you can still find a lot of such munitions on the 2nd World War in the ground
In the case of both private and commercially used real estate, these can greatly reduce the value of the property or even render it virtually worthless, since they can no longer be used for the intended purpose, for example.
So what do I have to consider as the seller of a property?
Sellers of real estate often have the idea of contractually exempting themselves from liability or limiting it from the outset. However, this can be problematic, as it is neither in the interest of the buyer nor in the interest of the seller to protect the seller in this way during the contract negotiations; moreover, it is doubtful whether liability can be contractually excluded in this way, i.e. for contaminated sites that only become known later.
According to a recent decision of the Federal Court of Justice (Bundesgerichtshof: BGH) (ruling dated November 11, 2022, file no. V ZR 213/21), a concealed suspicion of contamination on the part of the seller already triggers a claim by the buyer for rectification of defects against the seller (if the suspicion is later confirmed), up to and including complete rescission of the purchase contract. Due to the often high costs, this represents a high risk as described!
With known old loads these should be mentioned naturally in the sales contract and it should be also regulated, who is responsible for the removal of these, guesses attorney Fürstenow. This will be reflected regularly in the purchase price, since old loads will prove often as strongly value-reducing.
Therefore, it may be advisable for both buyer and seller to take out insurance to protect against such costs due to environmental risks.
What kind of insurances are there?
On the one hand, there is the so-called “W&I insurance” (Warranty & Identity). This is usually already standard for M&A transactions such as company mergers, but can also be taken out for real estate transactions, as is the case here. This covers (future) risks and obligations arising from the purchase agreement. However, protection against environmental risks, which also include damage caused by contaminated sites, is usually not covered by standard insurance due to the rapidly occurring amounts of damage, and additional cover would have to be taken out, for example, in the form of environmental damage insurance.
In addition to environmental damage insurance, another option is currently being developed: Pollution Legal Liability (PPL). Depending on its design, this can cover third-party claims, e.g. from authorities, as well as general costs. The insurance is adapted to the respective risks of the matter to be covered by a prior precise examination on the part of the insurance company.
Of course, the insurance premium to be paid is usually not small due to the dimensions that can actually occur, but it may still be advisable to take out such insurance. Especially since the insurance premium can usually be better negotiated or transparently taken into account in the purchase price as a fixed amount than any damage that may occur, which usually cannot yet be precisely measured. This may make transactions somewhat more expensive in the short term, but in the long term, much higher costs can be avoided.
Both the buyer (as a kind of self-damage coverage) and the seller (as a kind of liability insurance) can take this out.
Conclusion
Potential contamination and its consequences should not be underestimated in any real estate transaction. It is therefore advisable for both the buyer and the seller to seek solutions in order to keep the risks as low as possible. Since the jurisdiction sets however as pointed out clear partial borders to it, the conclusion of one of the described insurance can represent quite a meaningful solution. Whether such an insurance is actually worthwhile, however, cannot be answered in general terms and depends on the individual case. It is equally uncertain whether it will become established in Germany. What is clear, however, is that you should deal with the issue of contaminated sites, be aware of the risks and develop appropriate solutions, especially in the case of any commercial real estate transaction.
Do you have any further questions on the subject; are you in or are you currently planning a (commercial) real estate transaction and need support? Attorney Mr. Fürstenow will be happy to advise you further on this matter.
The legal advice was prepared by the employee of FÜRSTENOW Law Office, Mr. Ewert, and finalized by Attorney at Law Mr. Sascha C. Fürstenow.