REALWorld Law

Real estate finance

Environmental liability

Can a lender holding or enforcing security over real estate in his country be liable under environmental laws, even if it did not cause any pollution of the real estate?

Angola

Angola

Under Angolan environmental law, a lender holding or enforcing security over real estate in its country has no liability if the lender did not cause any pollution or environmental damage to the property, does not hold possession of the real estate and does not manage the asset. Consequently, the holder of security cannot and could not control or prevent the material cause of any damage or environmental breach.

A holder of security over land is not liable for environmental damage provided it does not take possession of the land and does not itself cause, or knowingly permit, damage to the environment.

Australia

Australia

In most jurisdictions in Australia, environmental laws can be enforced against an owner or occupier of land irrespective of who caused the problem. Environmental laws will therefore apply to lenders where they are in occupation of the land (for example, where a mortgagee is in possession of the security property following a borrower's default).

Belgium

Belgium

A holder of security over real estate is not liable for environmental damage provided it does not take possession of the real estate, and does not itself cause damage. Facility agreements usually provide for certain representations and covenants in order to mitigate the risk of reputational damage.

Bosnia-Herzegovina

Bosnia-Herzegovina

We are not aware of such practice and there is no provision for such liability in law.

Canada

Canada

A lender holding security over real estate does not normally incur environmental liability relating to the making of a mortgage loan, provided the lender does not itself cause or knowingly permit environmental damage to the subject property.

Generally, environmental laws can be enforced against an owner or occupier of land irrespective of who caused the problem. Environmental laws could therefore apply to lenders where they are in occupation of the land (for example, where a mortgagee is in possession of the security property following a borrower's default).

China

China

PRC Environmental laws have generally adopted a 'polluter pays' approach to liability. The Circular on Strengthening the Prevention and Control of Soil Pollution, issued by Ministry of Environmental Protection in 2008 provides that for pre-existing soil and groundwater contamination, the original polluter will be responsible for the remediation and recovery. A holder of security over land will not be responsible for soil pollution or contamination of the building if it did not cause the pollution or contamination.

Croatia

Croatia

Security holders are not liable under environmental laws for real estate which is the subject of the security.

Czech Republic

Czech Republic

A person entitled to the benefit of security is not liable for any environmental damage related to the assets which are subject to the security.

Denmark

Denmark

A secured lender is not liable for environmental damages unless the pollution is caused by the lender.

France

France

A holder of security over land is not liable for environmental damage provided it does not take possession of the land and does not itself cause, or knowingly permit, damage to the environment.

Great care must be taken if the security is enforced because in some circumstances owners of land can be liable for environmental damage on that land or emanating from it, even if they did not cause the damage. A mortgagee should not go into possession of land without careful consideration of the implications of potential environmental liability.

Germany

Germany

A holder of security over real estate is not liable for environmental damage provided it does not take possession of the land and does not itself cause damage to the environment.

Great care must be taken if the security is enforced. This will be done by way of contractual arrangements involving the owner of the real estate or the insolvency administrator who has been appointed in relation to the property-owning company. This is because the owner of real estate or the insolvency administrator can be liable for environmental damage on that land or arising from it, even if it did not cause the damage.

A contractual instruction to the owner/insolvency administrator to act in a certain way may then lead to liability on the part of the instructing security holder itself. A mortgagee/land chargee should not take up possession of real estate without careful consideration of the implications of potential environmental liability.

Hong Kong, SAR

Hong Kong, SAR

A holder of security over land is not liable for environmental damage provided it does not take possession of the land and does not itself cause, or knowingly permit, damage to the environment.

Great care must be taken if the security is enforced because owners of land can be liable for environmental damage on that land or coming from it, even if it did not cause such damage. A mortgagee should not go into possession of land without careful consideration of the implications of potential environmental liability. 

Hungary

Hungary

In Hungary, the ‘polluter pays’ principle applies, thus a lender holding security over real estate is not liable for environmental damage (provided that it did not cause such damage itself).
If the security is successfully enforced, then the new owner and, if that is a different person from the owner, the user/occupier of the real estate have joint and several liability for environmental damage, it is important for lenders to have a prior knowledge of the land’s environmental status before enforcing (or even taking) security. The owner (including, for example, any person acquiring the property as a result of the enforcement of the mortgage, of the call option or by way of a consensual transaction) will only be relieved of environmental liability if it can prove that it did not itself cause the damage and can name the party actually responsible for the pollution.

Ireland

Ireland

A holder of security over land is not liable for environmental damage provided it does not take possession of the land and does not itself cause, or knowingly permit, damage to the environment.

Great care must be taken if the security is enforced because owners of land can be liable for environmental damage on that land or arising from it, even if they did not cause such damage. A mortgagee should not go into possession of land without careful consideration of the implications of potential environmental liability.

Italy

Italy

A lender can only be liable under environmental laws if it exercises step-in rights. For example, if a lender enforced its security over the land and became a legal owner of the land.

Japan

Japan

A holder of security over land is not liable for environmental damage unless it owns, manages or takes possession of the land.

Great care must be taken if the security is enforced because as mentioned above, owners of land, among others, can be responsible for investigating potential environmental damage on that land or coming from it and for taking necessary measures to prevent health hazard, even if it did not cause such damage (owners has the right to claim the expenses for such investigations and measures against the person who caused such environmental damage).  A mortgagee should not go into possession of land without careful consideration of the implications of potential environmental liability.  

Netherlands

Netherlands

A mortgagee is generally not liable for environmental damage provided that it does not itself cause or knowingly permit damage to the environment (or influence the acts of the landowner/mortgagor to do so). However, environmental issues need to be assessed if a mortgagee takes over the management of a property or even buys the property itself in connection with the enforcement of a right of mortgage.

Nigeria

Nigeria

Generally, environmental liability  is borne by the owner or occupier of the real estate. The holder of security interest in the property, not in possession will not be liable for environmental pollution except caused by it.

Norway

Norway

A holder of security over land is not liable for environmental damage provided it does not take possession of the land and does not itself cause, or knowingly permit, damage to the environment.

Care must be taken if the security is enforced because owners of land that operate, use or possess the land can be liable under strict liability rules, for environmental damage from or on that land, even if the owner did not cause the damage and further even if there has been no fault or negligence on the part of the lender/owner. A mortgagee should not go into possession of land without careful consideration of the implications of potential environmental liability.

Poland

Poland

The Polish legal system provides for the user of land to be liable for environmental damage. Pursuant to Polish law such an entity, in the case of a threat of direct environmental damage, is obliged to promptly take precautionary actions and when the damage arises it should take action aimed at limiting new damages from arising and starting recovery proceedings.

Therefore, the Polish legal system limits the liability for environmental damage to the entity using real estate (with an exception for the owner of the land who was aware of the fact that the entity actually using the real estate was causing damage and consented to it, in which case he is jointly liable for the damage). This means that as long as a lender holding or enforcing security over real estate is not an entity using real estate in a way that causes damage, it will not be liable under the environmental law.

Portugal

Portugal

Under Portuguese environmental law, a lender holding or enforcing security over real estate in its country has no liability if the lender did not cause any pollution or environmental damage to the property, does not hold possession of the real estate and does not manage the asset. Consequently, the holder of security cannot and could not control or prevent the material cause of any damage or environmental breach.

Romania

Romania

Environmental protection legislation is based on the 'polluter pays' principle (the person causing the pollution is liable). Where there are several polluters, they are jointly liable towards third parties and the authorities, but between them their liability is proportionate to their actual fault.

A lender's liability per se is not expressly regulated by the law. Nonetheless, environmental risks that might affect the value of a property charged with a mortgage in favour of the lender need to be taken into consideration.

Slovak Republic

Slovak Republic

A holder of security over land is not liable for environmental damage provided it does not take possession of the land and does not itself cause, or knowingly permit, damage to the environment.

Spain

Spain

A holder of security over land is not liable for environmental damage provided it does not take possession of the land and does not itself cause, or knowingly permit, damage to the environment.

Great care must be taken if the security is enforced because owners of land can be liable for environmental damage on that land or arising from it, even if they did not cause the damage. A mortgagee should not go into possession of land without careful consideration of the implications of potential environmental liability.

Sweden

Sweden

Swedish law imposes environmental (clean-up) liability in accordance with the 'polluter pays' principle. In addition, vicarious liability may attach to anyone who acquires a contaminated property. Such a person will be responsible for remediation measures in the event that the polluter is unable to perform or pay for remediation (if, at the time of the acquisition, the acquirer knew or ought to have had knowledge about any instances of pollution). There are some differences in the extent of what might be required depending on whether the damage caused is classified as pollution damage or serious environmental damage.

In circumstances where a lender acquires a real estate asset as a result of enforcing its rights under a mortgage or otherwise, it may incur environmental liability in its capacity as owner of a polluted property.

Thailand

Thailand

No.

United Arab Emirates - Abu Dhabi

United Arab Emirates - Abu Dhabi

Typically, a lender would not be liable. The relevant authorities will ordinarily pursue the party responsible for causing the environmental harm. If there are any remedial costs associated with rectifying the damage, the law provides that the lender may 'take whatever legal action is necessary to protect its rights and recover the costs from the borrower'. In addition, the mortgage will typically contain indemnities in favour of the lender in the case of pollution or other harmful environmental acts caused by the borrower.

United Arab Emirates - Dubai

United Arab Emirates - Dubai

Typically, a lender would not be liable. The relevant authorities will ordinarily pursue the party responsible for causing the environmental harm. If there are any remedial costs associated with rectifying the damage, the law provides that the lender may 'take whatever legal action is necessary to protect its rights and recover the costs from the borrower'. In addition, the mortgage will typically contain indemnities in favour of the lender in the case of pollution or other harmful environmental acts caused by the borrower.

UK - England and Wales UK - England and Wales

UK - England and Wales

A holder of security over land is not liable for environmental damage provided it does not take possession of the land and does not itself cause, or knowingly permit, damage to the environment.

Great care must be taken if the security is enforced because owners of land can be liable for environmental damage on that land or coming from it, even if it did not cause such damage. A mortgagee should not go into possession of land without careful consideration of the implications of potential environmental liability. More often a mortgagee will, under the relevant security documentation, have the power to appoint a receiver under the provisions of the Law of Property Act 1925 (an LPA receiver) to enter into possession of and realize the real property assets on behalf of the mortgagee. As the LPA Receiver is an agent of the grantor of the security and not of the mortgagee the mortgagee avoids becoming a "mortgagee in possession" and subject to the legal risks that would involve.

UK - Scotland

UK - Scotland

A holder of security over land is not liable for environmental damage provided it does not take possession of the land and does not itself cause, or knowingly permit, damage to the environment.

Great care must be taken if the security is enforced because owners of land can be liable for environmental damage on that land or coming from it, even if they did not cause such damage. A mortgagee should not go into possession of land without careful consideration of the implications of potential environmental liability.

Ukraine

Ukraine

In general, Ukrainian law imposes environmental liability on the owner of real estate and not on the holder of the security interest (provided it did not cause the pollution). Liability may be imposed on the lender, if the lender becomes an owner of the real estate, for example, through the enforcement of the security. Also, if the lender takes possession of, and actual control over, the mortgaged property in the course of enforcement, it may, potentially, be responsible for the state of the relevant mortgaged property and any environmental consequences of its actions with respect to such property prior to acquiring the formal title to such property.

United States

United States

A lender holding security over real estate does not normally incur environmental liability relating to the making of a mortgage loan, provided the lender does not itself cause or knowingly permit environmental damage to the subject property. The lender also may be exempt from liability because the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) exempts from liability anyone ‘who, without participating in the management of a … facility, holds indicia of ownership primarily to protect his security interest in the … facility.’

Notwithstanding this exemption, the lender may face potential liability for clean-up costs as an owner or operator under CERCLA if it takes possession of a contaminated site upon default of the owner’s underlying loan obligation or subsequently acquires title to such a site through foreclosure or deed in lieu of foreclosure.

In 1996, Congress restricted the meaning of ‘participating in the management of a … facility’ to limit the risk of liability for foreclosing lenders. Even with these measures in place, it is common for commercial mortgage lenders to receive an indemnity from the principal of the property owner or arrange for environmental insurance coverage to mitigate any potential liability.

Zimbabwe

Zimbabwe

A holder of security is not considered a real owner, therefore they are not liable for any environmental damage unless they also occupy the real estate. The Environmental Management Authority will hold the occupier and owner of the property liable.