June 17, 2014

Upcoming Repeal Will Shorten Environmental To-Do List for Indiana Property Sellers

Soon, sellers of real property in Indiana can cross off one requirement from their closing checklist. On July 1, 2014 the law repealing the Indiana Responsible Property Transfer Law (IRPTL) becomes effective, which will eliminate the requirement that sellers of applicable real property disclose and record potential environmental defects on the IDEM-mandated IRPTL Form. The repeal was the legislature's first step in a larger effort to implement regulatory reforms in Indiana.

Background of the Indiana Responsible Property Transfer Law

The IRPTL requires owners of real property that are listed on federal databases for hazardous waste or remediation sites, handle large quantities of hazardous substances, or contain underground storage tanks disclose historic activities and environmental conditions to buyers. The parties must then record the Environmental Disclosure for Transfer of Real Property form, State Form 5263, within 30 days of transfer. Failure to comply with the law could result in a voided transaction, damages, or even civil and criminal penalties.

The Indiana legislature enacted the IRPTL in 1996 as part of a multi-state trend to require sellers of real property to disclose environmental conditions to buyers as part of a property transfer. Such statutory requirements vary from state to state, and have not been adopted in every state. Connecticut and New Jersey have the most stringent property transfer laws, which require investigation and remediation of any areas of concern as a condition of the property transfer. The majority of states with environmental transfer statutes – like Indiana – require disclosure and then recordation of disclosure in the chain of title. However, other states like Arizona only require that sellers provide a disclosure form to buyers.

Effect of Repealing the Indiana Responsible Property Transfer Law

Once the repeal becomes effective, buyers of real property in Indiana will need to rely solely on their own due diligence to identify potential environmental issues and scrutinize more closely representations and warranties provided by the seller regarding a property's environmental condition. In addition, buyers who later discover undisclosed environmental issues will likely begin to focus on other voluntary property disclosure forms provided by sellers, such as due diligence questionnaires, for the basis of their breach of warranty claims. In either case, buyers and sellers of real property in Indiana should review their approach to handling environmental issues in light of IRPTL's repeal.

The environmental attorneys at Faegre Baker Daniels regularly assist clients nationwide with environmental issues related to transactions, including contract drafting and negotiation, due diligence, and complying with state property transfer laws.

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