Legal Q&A: Using Environmental Insurance To Close Real Estate Transactions

Gordon Duus, shareholder and chair of the environmental department, Mandelbaum Salsburg law firm, Roseland, NJ

Gordon Duus is a shareholder and chair of the Environmental Department at the law firm of Mandelbaum Salsburg in Roseland, NJ.  In 35 years of practicing environmental law, he has been involved in thousands of real estate transactions, including the purchase, sale, leasing and financing of real estate, many involving contaminated properties, and has assisted his clients with obtaining hundreds of environmental insurance policies. This is part one of a two-part conversation. Part two will appear on GlobeSt.com’s New Jersey page on Friday.

Q: How is environmental insurance used in real estate transactions? A: Environmental insurance can be used to manage unknown environmental risks in real estate transactions, so that the insurer assumes the risks that the parties to the transaction would prefer to avoid. Getting someone to accept those risks sometimes threatens the ability to close the transaction. For example, in every transaction the parties need to agree who will pay the cost to clean up pre-existing contamination that may be discovered on the insured property after closing. Where the risk has a higher probability of occurring, such as on industrial properties, gas stations and shopping centers with dry cleaning operations, a key obstacle in closing the deal is getting someone to accept that risk. In my experience, when the parties are negotiating who will accept this risk, if I suggest that environmental insurance can be obtained at a cost-effective price so that the insurance company will pick up most of this risk, the parties are apt to give serious consideration to buying environmental insurance to facilitate closing the deal.