Wednesday, March 14, 2007

Purchasing Real Estate in Sweden - Notes on Purchase of Commercial Real Estate including Tenement Buildings - Environmental issues

As a purchaser of commercial real estate, you acquire the risk of being liable for any necessary clean-up and after-treatment measures; provided that the previous owners conducting an environmentally hazardous activities causing pollution are not able to pay for these measures. However, if the purchaser did not know or should not know of the pollution he is free of this responsibility.

If we assume that the seller did not inform the purchaser of any pollution and even if he guaranteed that the real estate was free from pollution, the purchaser may have acquired liability, because he ought to have known.

It is a general principle in Swedish law as mentioned in a previous post that a purchaser of real estate has an obligation to investigate the real estate thoroughly. The purchaser is not able to claim that he should be entitled to rescind the purchase contract nor to compensation for “hidden defects”, if such defects would have been possible to find at a competent investigation of the real property prior to the purchase. The same principle may be said to apply also to pollution.

A purchaser of real property has to safeguard himself against unwanted and unknown liabilities to the extent possible and should at least carry out a thorough environmental due diligence to ascertain the possible risks of environmental liability. This should preferably be done separate from the normal real property due diligence as the investigators called in most probably should have different fields of expertise.

The due diligence investigation under the Swedish Environmental Code must first of all include a thorough ocular investigation. Should any land unevenness, rusting barrels or drums be visible, this must cause added investigations e.g. digging and analyzing soil samples. Normally, an investigation under the Swedish Real Property Code could be limited to non-destructive investigation. The purchaser need thus not open up floors or walls or start digging, but if there is an indication that something might be wrong such investigations have to be made.

It is also clear that a purchaser has an obligation to find out what kind of business activities have been carried out on the property to be purchased. Any indication that such activities could have entailed a risk for pollution, such aspects must be deemed to cause additional investigations.

The Purchase Agreement should provide for a compensation from the seller if, and, when, the purchaser is required to undertake and pay for the clean-up and after-treatment measures. It should, however, be noted, as very important point, that no agreement between the seller and the purchaser will influence the purchaser’s after-treatment measure responsibility towards the authorities; even if such an agreement may give the purchaser the possibility to seek compensation from the seller e.g. due to a breached guarantee.

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