Although environmental law issues should generally be considered in any transaction, this article undertakes a brief review of the relevance of such issues in projects involving real estate.
In accordance with the provisions of article 4 of Mexico’s Political Constitution, any environmental damages will be the legal responsibility of the party who causes such damages, all pursuant to applicable environmental laws.
In real estate transactions such as acquisitions, sales, or leases, one of the most sensitive issues to review and determine is the existence of soil contaminants and, where appropriate, the scope and objectives of potential remedies and attributing liability to the party who is legally responsible.
These specific environmental issues in the real estate sector are especially relevant, since the effects of contamination sometimes tend to be revealed slowly, coupled with the continued and ongoing effects of such contamination. This means that contamination at a given site may not be conspicuous at the time of performance of a real estate transaction and any traces of pollution may become visible or notorious after the acquisition of real property. Additionally, the actual causing of such pollution generates continuous damages and liability from the time it was caused until the environmental damage ceases, or the respective remediation and compensation has been accomplished.
It is also relevant to consider that in accordance with article 70 of the General Law for Comprehensive Waste Management, “The owners or possessors of private property and the titleholders of concession zones, in which soils are polluted, will be jointly and severally liable for performing remediation actions as needed, without prejudice to any action against the party who caused said pollution.”
From the above statutory language one can be deduce that the environmental authorities consider both the owner and tenant responsible for the remediation of the contaminated real property, regardless of whether or not they caused the contamination, and regardless of the actions they have to claim liability for the damage caused from the party who caused the contamination. Therefore, it is essential that before acquiring or leasing real property, parties verify that such property is free from contamination. To confirm this, it is advisable to conduct necessary environmental studies (Phase I or II) that allow the parties to understand the environmental status of the property, and in the event that there is contamination, understand the legal and practical risks and implications.
In addition to conducting an adequate due diligence prior to the purchase or lease of real property, it is also important to review: a) the project’s feasibility, taking into consideration the provisions of applicable environmental laws at the three levels of government; b) the current level of compliance with the environmental obligations to which the project is subject; and c) the existing risks due to non-compliance.
Environmental aspects are a fundamental part to consider in real estate development and projects. Reviewing the environmental conditions of a real property prior to its acquisition or lease is of the utmost importance to avoid or limit environmental risks and liabilities.