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May 2006

Verbal Environmental Assurances

Real Estate Weekly
The Daily Sentinel

You are buying your dream home. It's great and everything is perfect - except for one small thing: the seller tells you that an old oil tank leaked several years ago and an environmental cleanup has been performed and is completed. Is this the end of the story?

Probably not. Certainly not if you are my client.

Its not that sellers are dishonest. Rather, it is the reality that if the seller is wrong, even accidently wrong -this is going to be your problem after your purchase the home. And since oil tank leaks can cost a lot of money you need to be careful. Usually, that means doing your own evaluation.

The extent of evaluation that you should undergo depends on a lot of things. You and your real estate professional should evaluate the matter and determine how far you need to go.

Perhaps a copy of a municipal approval and a seller's sworn statement will do. Or you may decide that the other extreme is required-meaning that you hire a consultant who will actually engage in confirmatory environmental sampling. This is actual soil and perhaps water sampling necessary to prove that no environmental problems have been overlooked.

Should you need to retain the services of an environmental consultant, I recommend not using a company recommened to you by the seller. You want a professional who is 100% neutral.

And if the seller's real estate agent makes the recommendation, I would generally shy away from the testing company. There is a good chance that the company will be motivated not to give bad news, because that might kill this deal and dry up future referrals.

Ask your real estate professional or your lawyer for recommendations. You may also ask your state regulatory agency if tank remediation companies are regulated in your state. In that case, perhaps you might want to pick some one from that approved list.

Your consultant should be given a copy of everything the seller gave to you relating to the leaking tank problem. Your consultant will propose a few tests which should confirm the representation that the leaking tank is no longer a problem. And hopefully that is how it will turn out.

Often, the news will be good - the problem has been fully dealt with. However, based on my experience I can tell you that many times consultants find that former leaking tank locations that are reported to be clean really are not clean. In that case, often more site cleanup will be required.

If you learn that the tank problem has not been adequately addressed, you will need to engage in additional negotiations with the seller. To do this, I suggest that you see your lawyer once again. This can be a costly proposition if not handled correctly and you should have a professional handle the discussions.

Here are the important points. If a tank problem is reported to have once existed, obtain iron clad proof that it has been adequately addressed. This can mean anything from a written assurance to all out testing. You and your advisor need to determine how far you need to go.

If a problem still does exist, it does not have to kill the deal. There are many creative ways in which to handle this situation. Perhaps money can be escrowed, perhaps the seller's insurance company may commit to the cleanup, or perhaps the closing will have to await the completion of the cleanup. Other possibilities exist as well. You and your lawyer need to be protective and creative: if you are, the deal can be saved.

In my opinion, no real estate transaction should ever be killed because of a leaking tank. While lawyers must provide their clients with complete protection, where there is a will, the deal can be saved -and should be saved.