Environmental issues in real estate transactions are critical, and can be a source of significant financial liability.

California Attorney and Real Estate Broker Chris Adishian answers the question, “How important are environmental issues when purchasing a commercial property?” at the South Bay Association of Realtors Commercial Attorney Panel on June 2, 2015.

Transcript

This is in the larger context in the topic of due diligence. They call it inspections for residential, but for commercial properties they tend to call it due diligence. There’s a whole slew of factors to look at as you’re investigating the purchase of the property, but absolutely, you should look at environmental issues. For example, we’re in El Segundo – almost every property transaction in El Segundo has environmental issues. Why? Well, the Standard Oil refinery used to operate before there was Chevron and before there were environmental regulations, so a lot of the ground in El Segundo has environmental issues under the current laws.

So every time a property trades you should know what you’re getting, and often times that involves hiring an environmental consulting firm. They have reports – if you’re not familiar – they’re called “Phase 1’s”. That’s sort of an initial inquiry to see if they are any issues.
As a buyer, you want to know that because you might have to pay to have it remediated. And as a seller you want to know that because the buyer is going to ask, but also so when you close the transaction both parties have the same information and you don’t have a claim coming back to you. Most of these issues can be remediated. There’s a whole industry out there and there are consultants available on the state of California Website.

Again, if you have a good team as you’re going through your acquisition or your sale, your attorney will point out, from his or her checklist, this is something to really be aware of: environmental risk of the actual land. It will also go into your leases, and usually there is a baseline that says “landlord knows of this as of today.” Then when the tenant comes in, they reference that baseline so when the tenant leaves they can say “this is a preexisting condition” or “the tenant caused this to happen” – and if the tenant caused it to happen then it is their job to remediate.

Many venture backed (and other corporations) choose to incorporate in Delaware due to its well-developed law regarding various common corporate issues. One such issue is a shareholder’s right to inspection.

The controlling statute governing shareholder inspection rights is 8 Del. C. Sec. 220, which provides that :
“(b) Any stockholder, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose, and to make copies and extracts from:
        (1) The corporation’s stock ledger, a list of its stockholders, and its other books and records; and
        (2) A subsidiary’s books and records….”
Heavy Procedural Requirements

In order to exercise their rights under Section 220, the shareholder must comply with each procedural requirement of the statute. Like many areas of law there are “procedural” requirements that must be satisfied in order for the individual or entity to receive access to the “substantive” benefits of the law. Here, a failure to comply with the procedural requirements of the statute could result in a delay or denial of an otherwise proper request.

Expedited Process Via Summary Proceeding

Delaware courts have a summary proceeding designed specifically for inspection demands brought pursuant to Section 220. The goal is to promote a quick resolution of any disputed inspection demand for both the company and the shareholder.

Each Case Unique

It is common for shareholders to want information about their corporate investments, and it is common for Company management to want to minimize the amount of information disclosed. Often these differences can be resolved informally, however there are many times where a compulsory court process is necessary. If you find yourself at a stalemate with an inspection demand to a Delaware corporation, we recommend that you contact an attorney promptly. Through our network of attorneys, we can refer you to competent, experienced Delaware co-counsel to advance your case.

About Adishian Law Group, P.C.

Adishian Law Group is a California law firm with a statewide practice in the areas of Corporate law, Employment law, Real Estate law and Mediation Services. Adishianlaw.com is one of the oldest continually operating law firm websites on the Internet. The firm serves its clientele via three offices located in the major business hubs of El Segundo, Palo Alto and San Francisco. As of March 2013, Adishian Law Group, P.C. has represented individual and corporate clients located across 20 California counties, 4 States outside of California and 9 foreign countries — in over 340 legal matters.

For more information about this topic or to speak with Chris Adishian:

Telephone: 310.726.0888 | 650.646.4022 | 415.955.0888
Email: askalg@adishianlaw.com
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