Environmental representations: Overview, definition, and example
What are environmental representations?
Environmental representations are statements or assurances made by one party (typically the seller, business owner, or operator) about the environmental status of a property, facility, or business. These representations can include details about compliance with environmental laws, the presence of hazardous materials, pollution levels, waste management practices, and other environmental factors. They are often included in contracts, such as mergers and acquisitions, leases, or sales agreements, to assure the other party that the business or property is free from environmental liabilities or risks.
In simpler terms, environmental representations are promises made about the environmental condition of a business or property, ensuring that it is safe, compliant with laws, and not causing harm to the environment.
Why are environmental representations important?
Environmental representations are important because they help protect parties from unexpected environmental liabilities or risks that could arise from a business or property. If the environmental conditions of a property or business are misrepresented, the party relying on those representations could face significant financial or legal consequences. By including environmental representations in contracts, businesses can reduce risk and ensure that they are not unknowingly taking on environmental problems from previous owners or operators.
For SMB owners, understanding and making accurate environmental representations is essential to protect the company from legal disputes, penalties, or costly clean-up efforts related to environmental issues.
Understanding environmental representations through an example
Let’s say you are purchasing a manufacturing facility, and the seller provides an environmental representation stating that the property is fully compliant with all local environmental regulations and that no hazardous materials are present. After the purchase, you discover that there are toxic chemicals in the building’s soil, and you face significant cleanup costs. If the seller misrepresented the environmental status of the property, you may be able to seek damages or rescind the purchase contract based on the environmental representations made.
In this example, the environmental representations serve to protect you as the buyer by assuring that the property is free from undisclosed environmental issues.
Example of an environmental representations clause
Here’s an example of what an environmental representations clause might look like in a contract:
“The Seller represents and warrants that, to the best of their knowledge, the Property complies with all applicable environmental laws and regulations. The Seller further represents that no hazardous materials are present on the Property, and there are no known environmental claims, violations, or liabilities associated with the Property. If any such issues arise after the sale, the Seller agrees to indemnify the Buyer for any related costs or damages.”
Conclusion
Environmental representations are a critical aspect of contracts that involve property or business transactions, ensuring that both parties understand and acknowledge the environmental status of the property or operation in question. For SMB owners, making accurate and truthful environmental representations can protect the business from future liabilities, legal disputes, and costly environmental cleanup efforts. By including these representations in contracts, businesses can ensure transparency and mitigate environmental risks during transactions.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.