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What Is An Environmental Indemnity Agreement

The guarantor must also endeavor to limit its compliance obligations “to the extent necessary” under environmental law and provided that such obligations do not conflict with other obligations of the owner and/or guarantor (e.g. B obligations of co-ownership documents). Providing redress to a lender and resorting to assets not associated with the property can result in potentially damaging consequences for the guarantor. The context of the case is by no means unusual. As part of its due diligence, the lender conducted environmental testing on the property before closing the loan, revealing the potential presence of tetrachloroethene on the site. The lender then transferred the mortgage to a second lender (the “assignee lender”). When the borrower defaulted on the loan, the recipient-lender of the assignment performed environmental tests on the property before initiating foreclosure. The guarantor should also consider ways to review the insurance, guarantees and obligations contained in the indemnification agreement. Following VFC Partners` decision, lenders must ensure that environmental compensation agreements express the hope that a borrower will compensate a lender for post-default environmental assessment costs incurred as part of a seizure or fact. In addition, lenders should carefully issue their environmental compensation agreements to avoid interpreting a list of expenses as exhaustive.

In VFC Partners, the Court of Appeals for the First Circuit found that the lender was not fully protected by the environmental compensation agreement included in its mortgage with a borrower. The parties` agreement provided that the borrower`s principal and an affiliate would indemnify the lender for all costs and liabilities “of any kind.” requested by [the creditor] in connection with, in whole or in part, directly or indirectly, or invoked against [the creditor]. the presence, presumed presence, release, presumed release or threat of release of hazardous substances” on or around the funded property. The indemnification agreement listed seven specific categories of liability, including “the costs necessary to take the necessary precautions to protect against the release of hazardous materials” into, on or under the property. Ignoring the potential for environmental costs until a problem arises is simply not worth the risk. Sunset regulations. One of the most common ways for a compensation provider to eliminate its liability under environmental compensation is to add a sunset clause that provides that after full repayment of the loan, environmental compensation ends after a certain period of time and after certain conditions are met. While borrowers often ask for a one-year expiration, lenders usually insist that environmental compensation survives two or even three years after the loan is fully repaid. .