When is environmental insurance appropriate? Environmental insurance may need to be considered in the following situations: • an environmental report identifies significant concerns regarding contamination • there is stalemate in environmental indemnity negotiations • there are concerns over the covenant strength of the indemnifying party • insurance is required by funders, tenants or to help the saleability of a high risk site See Practice Note: Environmental insurance—why take out environmental insurance? What type of policy? The usual type of insurance in asset purchase transactions is a ten–year fixed site policy often called an Environmental Impairment Liability (EIL) Policy or Premises Pollution Lability (PPL) Policy. This can protect the insured parties against regulatory

For more information, see: Post-completion environmental issues (asset purchase)—checklist. Deal with any EHS issues highlighted in the legal due diligence report Legal due diligence reports and asset purchase agreements (APAs) will sometimes set out specific issues that need to be dealt with post completion. Actions can include the following: • carrying out a baseline phase 2 environmental audit • undertaking a phase 1 compliance audit to rectify items raised during due diligence • preparing an asbestos management plan • addressing recommendations in a fire risk assessment or legionella report The buyer will undertake these tasks having control of the property. The APA can include mechanisms for the seller’s lawyers to have input in the post-completion work, such as: • agreeing the scope of work for any environmental audits • having access rights to complete certain works, and/or • for the seller to pay the costs incurred by the buyer See Precedent: Environmental rectification work clause. Address any EHS issues that have been identified in an environmental audit The

The majority of the completion and post-completion tasks in an asset purchase transaction are undertaken by the corporate lawyers, such as: • completion meeting • filing notices at Companies House • preparing the transaction bible of signed documents • making any adjustments to the purchase price See Practice Note: Completion and post-completion issues—asset purchase. Unless an environmental insurance policy needs to be incepted

Heads of terms The acquisition of a business (the target business) will begin with agreement of the main commercial terms including price, deal structure, due diligence arrangements, exclusivity terms and timescale. The commercial terms will usually be negotiated directly between clients or with their accountants or other professional advisers and recorded in heads of terms, also known as a ‘letter of intent’ or ‘memorandum of understanding’. See Practice Note: Heads of terms—share and asset purchases. If there are known or suspected environmental concerns, the heads of terms may include: • disclosure of existing environmental report(s) to the buyer • requirement for a reliance agreement or collateral warranty so the buyer will get the benefit of the environmental report(s) • mechanism for the buyer to carry out a phase 1 environmental audit or phase 2 ground investigations • key terms for an environmental indemnity or environmental insurance What happens during the preliminary phase? The corporate lawyers in the preliminary phase will: • decide whether to structure the transaction as

Reviewing technical reports If a technical environmental report was obtained by the buyer during the due diligence phase (or provided by the seller in the data room), it will need to be interpreted and then practical advice provided to the client regarding potential liability issues and suggested recommendations to mitigate the risks. Key issues for the lawyers to consider are: • does the report provide clear evidence of environment, health and safety (EHS) non-compliance issues, capex requirements or potential liabilities? • should an independent environmental consultant review and challenge the conclusions of the environmental report? • will a conference call or meeting between the two environmental consultants (with clients and lawyers) help to resolve any issues of concern? • are any further investigations or enquiries required and if so, what are the timing and cost implications? • what are the most realistic options available to address the concerns—specific warranties, environmental indemnity, rectification deed, price adjustment, escrow account, environmental insurance? See

Acting for a seller The Precedent: EHS warranties—asset purchase agreement—seller’s version contains a minimal set of environment, health and safety (EHS) warranties for use when acting for a seller. The definitions are wide and no warranties are given in respect of contaminated land. The warranties are restricted to the following key issues: • environmental permits • compliance with EHS law • claims and litigation Practitioner tip Since other warranties in the asset purchase agreement (APA) could potentially relate to EHS matters—in particular:• the general warranties on compliance, litigation and permits • property warranties (asbestos, neighbour disputes, land condition and flooding) • employee warranties relating to health & safety claims The Precedent therefore contains

This Practice Note sets out the key environmental and health and safety (EHS) issues to consider in an asset purchase transaction. The following questions can be used as a checklist by the seller’s solicitors preparing the data room, or by the buyer’s lawyers advising their client whether the EHS documents in the data room are sufficient for the type of business. See Practice Notes: Environmental due diligence—asset purchase and Environmental issues when selling a company or business. Contaminated land In an asset deal involving the sale of land, the parties will need to consider who takes legal and contractual responsibility for onsite contamination and offsite migration. If the property is ‘sold with information’, the seller’s legal liabilities under the contaminated land regime (Part IIA of the Environmental Protection Act 1990) will usually be transferred to the buyer. If the seller wants as clean a break as possible from contaminated land liabilities at completion, the asset purchase agreement (APA) and property transfer may need to contain a wider environmental indemnity from the buyer,

The sale contract is usually drafted by the seller’s solicitors and may have been provided as early as the heads of terms stage. The seller and buyer’s lawyers will negotiate the sale contract provisions, subject to the findings of the searches and enquiries. Timing The timing of this phase will be dictated by various factors, such as the deadlines set out in the heads of terms, the size and complexity of the transaction and the scope of the buyer’s due diligence:

In the due diligence stage, unless the seller is providing a certificate of title, the buyer will undertake pre-contract searches and enquiries and assess the need for any specific environmental due diligence such as site investigations, asbestos surveys or regulatory consultations. Key tasks for environmental lawyers during the phase The seller’s solicitors will:

Pre-contract searches Pre-contract searches are usually carried out by the buyer’s solicitor but may be carried out by the seller’s solicitors if they are to give a certificate of title. They can include: • local searches • index map searches • drainage and water searches • highways searches, and • environmental desktop searches For further information, see Practice Note: Pre-contract searches. Environmental desktop searches The Law Society Practice Notes on contaminated land and flood risk recommend that environmental and flood issues are considered in every property transaction. See Practice Notes: • Law Society practice note on contaminated land, and • Flooding—Law Society practice note on flood risk The Law Society guidance onthe impact of climate change on solicitors sets out guidance for organisations on how to manage their business in a manner which is consistent with the transition to net zero and Part B provides guidance for solicitors on how climate change physical risks and climate legal risks may be relevant to client advice, issues which

Commercial Property Standard Enquiries (CPSE) The Commercial Property Standard Enquiries (CPSE) have become the industry-standard pre-contract enquiries for commercial property transactions: • CPSE.1: General pre-contract enquiries for all commercial property transactions

When is environmental insurance appropriate? Environmental insurance may need to be considered in the following situations: • an environmental report identifies significant concerns regarding land contamination or water pollution • there is stalemate in environmental indemnity negotiations in the sale contract • there are concerns over the covenant strength of the indemnifying party, and/or • insurance is required by funders, tenants or to help the saleability of the site See Practice Note: Environmental insurance—why take out environmental insurance? What type of policy? Public liability (PL) policies offer little or no protection for land contamination or water pollution liabilities. PL policies are restricted to ‘sudden and accidental’ events and there is no cover for: • on-site contamination • licensed discharges • gradual