We would like to ensure that you are still receiving content that you find useful – please confirm that you would like to continue to receive ILO newsletters.
03 April 2006
When industrial property is sold and transferred, the parties usually agree on which environmental liabilities are assumed by which party. However, under mandatory public laws the seller remains liable for certain environmental obligations and the buyer becomes liable for other environmental obligations, irrespective of contractual provisions to the contrary.
Therefore, the contract drafter must be aware which environmental liabilities can be excluded and how adequate security can be provided for those liabilities which cannot be excluded. Moreover, the case law of the Supreme Court has exposed certain pitfalls for the unaware contract drafter in respect of environmental representations and warranties.
This update sets out general guidelines on those environmental liabilities which, by reason of public law, remain vested with the seller, and those which are automatically assumed by the buyer. Furthermore, it summarizes certain aspects of Supreme Court case law concerning environmental representations and warranties.
Waste Management Act
The Waste Management Act 2002 concerns the treatment of waste materials. Waste materials are materials specifically defined in the annex to the act to which at least one of the following applies: (i) the owner wants to dispose of the materials or has disposed of them; or (ii) the collection of the materials is in the public interest (as defined in detail in the act). The Waste Management Act is complemented by provincial laws and regulations.
Under the Waste Management Act, waste material need not necessarily be an individual object. For example, if oil contaminates the soil, then the soil (although legally part of the real property) becomes waste material for the purposes of the act. In any industrial facility, numerous waste materials will accrue as a result of the production process.
The Waste Management Act imposes a number of obligations on the proprietor of waste materials. In particular, waste materials may not be collected, stored or treated outside of authorized facilities or other places which are apt for the storage and collection of waste materials. Thus, the storage of waste materials in any place on the property which does not fulfil these criteria is illegal. The act contains special obligations with respect to hazardous waste materials.
If the proprietor of waste materials (which is the addressee of the obligations contained in the Waste Management Act) fails to comply with these obligations, then the authority can order it to undertake the necessary measures. For example, if certain dangerous waste materials are illegally stored on a property, then the authority may request the person who stored the waste materials to deliver them to an authorized waste treatment company. In case of imminent danger, the authority is entitled to undertake the necessary measures itself at the expense of the proprietor. In general, the proprietor remains liable for these obligations notwithstanding a subsequent sale of the property.
If the authorities cannot ascertain who violated the Waste Management Act, or if this person cannot remedy the situation for another reason (eg, due to a lack of funds), then the owner of the property on which the waste materials are situated may be ordered to undertake these measures, provided that the owner either (i) consented to the storage of the waste materials on its property, or (ii) tolerated the storage of waste there by a third party without taking adequate measures to prevent this.
The Waste Management Act also contains particular provisions on the sale of the property. It states that the buyer is liable if it was aware of the storage of the waste materials on the site, or was negligently unaware of this fact. Therefore, for the purchaser of industrial property it is of paramount importance to carry out extensive environmental due diligence prior to the purchase of a site on which it can reasonably be expected that waste materials have accrued.
Water Management Act
The Water Management Act contains various provisions regarding the use, preservation and protection of water. It defines 'water' as, among other things, lakes, rivers and ground water.
In particular, the Water Management Act provides that all water must be preserved and kept clean so that no danger to human beings, animals or plants and other public interests (as defined in the act) can arise. Moreover, any (not insignificant) direct or indirect introduction of substances into water, or any activities having an effect on water (eg, discharge of solid, liquid or gaseous materials into water, a change in the temperature of water), are subject to a public permit.
If such activities are undertaken without the required permit, or other provisions of the Water Management Act are violated, the authorities can order the addressee of these provisions to undertake the necessary measures to preserve the water. In case of imminent danger, the authority can undertake these measures itself at the addressee's expense. In general, the addressee remains liable for these obligations notwithstanding a subsequent sale of the property.
If the person who violated the Water Management Act cannot be identified, or otherwise cannot be held responsible, then the owner of the property may be ordered to undertake the necessary measures or to bear the cost of such measures, provided that it either (i) consented to the acts which are in violation of the Water Management Act on its property, or (ii) tolerated such acts undertaken by a third party without taking adequate measures to prevent this.
Similar to the Waste Management Act, the Water Management Act contains special provisions on the sale of the property. In this case, the buyer is liable for decontamination measures if it was aware of the violation of the Water Management Act, or was negligently unaware of it.
Therefore, with regard to the Water Management Act, it is of paramount importance for the purchaser of industrial property to carry out an extensive environmental due diligence prior to the purchase of a site on which it can reasonably be expected that water has been endangered.
In general, the operation of an industrial plant requires an operating permit under the Trade Act. The operating permit requires the holder to take certain precautions in order to avoid or minimize danger to human beings, animals, plants and any other precautions which are necessary in the public interest as defined by the Trade Act.
In general, if the production facility is sold and transferred to a new owner, then the operation permit - as well as the obligations contained therein - transfers to the new owner, which from then on is liable for compliance with the obligations.
However, this is true only if an ongoing operation is sold and transferred. If, for example, production has ceased and the operations have been shut down prior to the transfer of the plant, the rights and obligations are not passed on to the buyer. Therefore, the seller runs the risk of remaining liable for the observance of the orders contained in the operating permit, notwithstanding the fact that it is no longer the owner of the site and, therefore, does not have any legal means of ensuring compliance with such obligations.
Therefore, in such cases it is imperative that the seller ensures the observance of such obligations after the transfer of the property.
The parties to a contract of sale for industrial property usually allocate liability among themselves in the representations and warranties. In some decisions the Supreme Court has ruled on the interpretation of such representations and warranties.
The Supreme Court's rulings can be summarized as follows:
Under mandatory public laws, the buyer of an industrial site is liable towards the authorities for the observance of obligations under the Waste Management Act and/or the Water Management Act, provided that it was either aware of a violation of these acts or negligently unaware of such a violation. The seller remains liable even after the property has been transferred, if it was the party which violated the respective provisions.
Under the Trade Act, obligations arising in connection with the operating permit in general pass on to the buyer, although certain exceptions apply. In addition, certain other acts impose additional environmental liability obligations on the buyer and/or the seller.
Therefore, environmental representations and warranties should be drafted carefully and extensively.
For further information on this topic please contact Nikolaus Pitkowitz or Martin Foerster at Graf, Maxl & Pitkowitz Rechtsanwälte GmbH by telephone (+43 1 401 17 0) or by fax (+43 1 401 17 40) or by email (firstname.lastname@example.org or email@example.com). The Graf, Maxl & Pitkowitz Rechtsanwälte GmbH website can be accessed at www.gmp.at.
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
ILO is a premium online legal update service for major companies and law firms worldwide. In-house corporate counsel and other users of legal services, as well as law firm partners, qualify for a free subscription.