Industrial environmental risk: a provision is not an obligation

In almost every industrial disposal, historical contamination of the site falls outside the warranty and indemnity policy, and a buyer discovering that late sees it as a commercial disappointment. It is one, but it is first a consequence of what the product insures. A policy of this family covers the accuracy of statements made at a date, about facts unknown to the buyer, and it indemnifies the gap between what was stated and what is. Soil contamination does not let itself be described that way: it is not a past fact but a lasting state, with no date of occurrence, whose extent is discovered through successive boreholes over several years. The exclusion is therefore not a matter of appetite, it follows from the subject matter.

Three properties complete the explanation, and it is better to hold them together than to retain one. Contamination is ordinarily known before the deal, because industrial sites are monitored, audited and declared, which takes it out through the door marked known before the named exclusion is even reached. Its cost is not bounded: remediation is costed on assumptions about future use, the depth reached and the standard applicable on the day of the works, and those three variables move long after signing. Finally the obligation rests not on a contract but on an administrative regime attaching to the operator, which makes it indifferent to the allocations the parties have written between themselves.

It is this last point that produces the greatest number of errors, and it deserves to be set out slowly. Environmental liability for a site is generally strict and attaches to whoever operates it, not to whoever holds the shares. A buyer may therefore have negotiated a clause placing the burden on the seller, perfectly valid between them, and still receive from the authority an order addressed to it personally. The clause does not become useless: it grounds a recourse against the seller once the works are paid for. It simply does not shield the buyer from the obligation itself, which is what creates the expenditure rather than what shares it.

The distinction that follows is the one a professional must be able to draw in a meeting, because it separates two words everyone uses as though they named the same thing. A provision is an accounting estimate, made by the seller, on its own operating assumptions. The obligation is what the authority can require, on the assumptions it will itself adopt. The two resemble one another as long as nothing changes, and they diverge sharply on a change of operator: cessation of activity triggers under French law a procedure to restore the site to a determined use, with a future use to be settled, and remediation to an office or residential standard does not cost what continuation in industrial use costs. The seller's provision was calculated on the second assumption; a buyer planning something else is buying an obligation that no figure in the accounts announces.

There is a family of policies addressing this subject, and it must be named without being turned into a solution. Environmental impairment cover responds to pollution conditions at a designated site: it is written site by site, underwritten on the strength of a soil study rather than lawyers' reports, given a firm term of five to ten years matching the period over which discovery remains plausible, and it is triggered by the discovery of contamination rather than by the inaccuracy of a statement. A second figure exists for what is already known, in the form of a cap on remediation cost above an agreed works budget: it insures not discovery but overrun, which is an entirely different object.

One then sees what becomes of the environmental warranty in the sale agreement, and why it retains a use despite the exclusion. It no longer serves to fund remediation, it serves to establish what the seller knew. An inaccurate statement about the existence of a prefectoral order, about a pending procedure, about an analytical report withheld, remains an inaccuracy of statement, and the pollution exclusion does not always cover the loss arising from the silence itself rather than from the state of the ground. Drafting rarely separates the two with care, and that is a place where an attentive review genuinely gains something.

The last point is one of method, and it holds beyond environmental matters. A structural exclusion is not negotiated, it is replaced, and the useful professional is the one who knows when to stop drafting clauses and go and look at the ground. The sequence that works can be summarised: establish what is known through a study, not through a statement; settle the intended use, because it fixes the cost; find out whether the deal entails a cessation of activity, because that reopens the obligation; and only then handle the balance through what the contract or a dedicated policy can carry. An industrial acquisition worked in that order is no more expensive, it is simply worked in the right order.

One deeper reason for insisting remains, and it has to do with the length of time. Breaches of warranty generally surface within two or three years, which explains the term of policies in this family. Contamination surfaces over fifteen years, sometimes more, and the obligation does not become time barred as a contractual action does. A buyer protected for three years against inaccuracies and exposed for fifteen to an administrative obligation is not protected in the same way depending on which axis one looks along, and it is that asymmetry of duration, still more than the exclusion, that ought to decide how the deal is structured.