Environmental matters in real estate developments

Back in 2005 - 2007, when real estate fever was at its highest, one could hardly make a transaction without hearing words such as “fast”, “limited due diligence”, “red flag/issue-only report” etc. In the same time, due to levels of prices for lands within cities limits, a lot of investors turned their attention towards lands located outside city limits, either at city borders or within nearby satellite localities. In this context, taking into account environmental aspects in real estate transactions was a limited, formal matter, as most owners viewed environmental matters as irrelevant or not urgent in the given context (I remember asking an international investor whether they understood the environmental and reputational implications of owning and developing a commercial center on a former cyanide lake and such question being dismissed very rapidly as not relevant in the heath of announcing a new commercial center in a relatively undeveloped area).

Then, the real estate bubble came to an end. Developers have stopped their investments and have been very reserved with their plans, corroborated with the banks’ lack of interest in financing any project.

During the last year, we have seen things starting to move again on the market, slowly but constantly. We see residential projects being initiated (e.g.Adama last fall), commercial facilities being completed (after being on hold for several years), retailers aggressively pursuing country-wide expansions. All this plans have one thing in common: they are all located within city limits. Nobody expects today a customer to go 20 km outsides town (not even 5 km, for that matter), everybody is considering existing property portfolio and re-dimensioning city projects to meet market demands.

In this context, of carefully analyzed developments, owners/developers can and should take into account environmental aspects. Depending on where the lands are located (former industrial sites/plants or simply undeveloped lands within cities; lands located near protection areas) and what are the envisaged developments, there are several aspects that need to be evaluated.

The first thing that comes to mind when analyzing environmental aspects of real estate developments is the matter of soil and groundwater contamination and this it is, indeed, one of the most relevant aspects. In this respect one needs to analyze: are we talking about a brownfield development and what are the associated implications? Are there existing contamination issues or have there been any in the past (in order to identify source, remediation methods and cost, potential reappearances of such pollution sources after remediation and redevelopment)? Do we have a reliable environmental assessment, for such lands where an assessment is/has been necessary or the assessment made upon acquisition was just a preliminary one, touching just the tip of the iceberg? How did we divide the environmental liability with the seller/joint-venture partner? And the list can go on, depending upon the particulars of each project.

But apart from this, there are other aspects that need to be considered. I have heard numerous seasoned developers saying that they are no environmental aspects relevant to their business, as they are “clean” according to the approvals/permits they have obtained and subsequently, being surprised by the fact that there are actually many such legal requirements applicable to them. Many (still) believe that as long as the document obtained from the relevant environmental protection authority does not impose a particular obligation at a moment in time, there is no environmental obligation for that company.

Begging to differ, I would just mention that under environmental law, one needs to be compliant not only with obtained approvals/permits but also with environmental legislation in general, which is not always the same thing. It is true that integrated environmental permits issued for activities with impact on the environment provide, in detail, obligations of holders and limits associated with the respective activity (considering location, other functional activities, industry specific aspects etc.). However, for activities with limited or just potential impact on the environment, things are not always very clearly defined. It is the holder’s obligation to identify potential aspects in connection with the past, current and envisaged aspects of the development and to make sure that legal requirements are observed and relevant authorities are notified accordingly.

Among aspects which can be relevant for real estate development/redevelopments are: dangerous substances (among which, asbestos has been the sleeping beauty which appears more and more in brownfield developments) in connection with both the extent of redevelopment but also with health and safety matters on site, energy efficiency, waste matters, newly enacted EU timber regulations.

Adina Guțiu

Adina is an experienced real estate and environmental lawyer, with more than 10 years of practice in advising on real estate developments. Throughout her carrier, Adina has advices clients such as: Goldman Sachs International, Morgan Stanley, UBS AG, Citigroup Venture Capital International, OMV Petrom S.A., E.ON AG, Heitman International Sarl, First Title, Inveravante, Gran Via 2006, Global Emerging Property Fund, NEPI etc.

She is a member of the real estate practice of Reff & Associates |Deloitte Legal, and heads the Environment & Climate Change practice of the same firm.

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