Three main routes are available below for indemnitees to limit their liability under environmental indemnities. At the end of the day, the environmental indemnity is an important document for the lender so that it can protect itself from environmental risks, but there is some room for negotiation for the lender and the compensater. Environmental indemnities are usually performed jointly by the borrower and the guarantor as indemnitees and include insurance and agreements concerning hazardous substances and, above all, from the point of view of a lender, compensation to the lender for all claims or losses resulting from hazardous substances on the mortgaged property. Unless otherwise agreed by the opponent of the compensation, the compensation is indeterminate. Therefore, much of the negotiation between the borrower and the lender focuses on trying to limit when the lender can assert a right in the context of compensation. Declassification rules. Since the standard form of environmental compensation persists indefinitely, the person subject to compensation, in the event of enforcement, would still be held liable to the lender for environmental liabilities resulting from such seizure when the borrower no longer owns and controls the immovable property. It is understandable that the person liable for compensation does not want to be held liable for the actions of a third party after leaving the property. Therefore, the lender will often agree to add a release provision stating that the compensator is not liable for losses incurred by the lender, to the extent that such losses result exclusively from acts, conditions or events after the date on which the lender acquired ownership of the property through a seizure or deed instead of a seizure. However, those provisions should not exempt the evidencer from contamination or events in progress at the time of enforcement. Where there is a mezzanine loan secured by a mortgage of the holdings in the mortgage borrower, it is customary to include, during the enforcement of the participations of the mortgage loan by the mezzanine lender, a release of the equity of the mortgage lender in the environmental indemnity of the mortgage loan. In this case, only the guarantor should be released, because after a seizure, he no longer has any interest for the borrower or control.
However, the mortgage lender should not be released because the mortgage remains in arrears and the mezzanine lender then controls the mortgage borrower. The rules of sunset. One of the most common ways for a compensater to terminate their liability for environmental compensation is the addition of a sunset provision that provides that after the loan has been repaid in full, the environmental indemnity ends after a certain period of time and after certain conditions have been met. While borrowers often ask for a one-year term, lenders usually insist that the environmental indemnity survive two or even three years after the loan is fully repaid. With regard to the conditions that the compensater must meet to obtain the sunset, the main condition is that the borrower provides a clean environmental report in form and content, reasonably acceptable to the lender when the loan is repaid in full (or closer to the date of sunset), so that the lender is certain: that there is no current environmental risk. One of the most important subsidiary documents for commercial real estate loans is environmental compensation….