Commercial real estate transactions frequently include indemnification clauses, but the controversial agreement between the city of Fort Wayne and the Rifkin family for the North River property was uncommon.
Typically, indemnification agreements like the one Fort Wayne City Council approved Tuesday are requested by – and provide protection to – the buyer, not the seller, said David Norton, a partner and senior broker at BND Commercial in Fort Wayne.
“It's common for attorneys for the buyer to insist that the seller indemnify the buyer,” Norton said. “So if I come along and buy the property, I'm going to say you need to also indemnify me and protect me from legal action if somebody down the road sues me claiming there's a problem here.”
The city's agreement with the Rifkins removes the family from liability for the effects of environmental contamination that may have occurred at the site during the years it was used as a metal recycling facility. Norton, who was not involved in the North River sale, said he could not think of another instance in recent memory where a buyer gave an environmental indemnity to a seller.
The council approved the agreement on a 5-3 vote. The city announced plans last month to buy the 29-acre site for $4.63 million from the Rifkins. The city sees the property as part of its riverfront development plans.
Pat Hess, an attorney for Beckman Lawson who handles commercial real estate cases, agreed the North River agreement was unusual, particularly because one party is a public entity. Hess also concurred that in a typical private deal, the buyer is usually the one to request an environmental assessment.
“Sometimes the seller stays on and does the (cleanup) work,” Hess said, adding that other times, the seller might decide they don't like the results of the assessment and fight it in court.
“Usually the buyer and the seller come to an agreement,” Hess said. “The norm is that the seller would participate in some of the remediation.”
Despite the unusual nature of the North River agreement, Norton said environmental contamination is a concern with most commercial property, including in downtown Fort Wayne.
“That downtown is 200 years of people building buildings and operating some kind of business on it,” Norton said. “Do you think logically that there's contamination underneath any building you pick? Absolutely.”
Norton said environmental concerns are common downtown.
“There's a big difference between buying a property in downtown Fort Wayne and buying a cornfield at the corner of Lima and Carroll Roads,” Norton said. “That cornfield probably doesn't have much history there, but downtown has 200 years, so there's always that concern.”
One transaction Norton noted involved the sale of a building constructed in the 1980s. An initial environmental study found a dry-cleaner operated at what had become the building's parking lot. The type of chemicals used by dry-cleaners set the transaction back a year, Norton said.
There are ways to clean up a contaminated site while limiting the cost to the buyer, he said. There are federal, state and local grants that can help restore contaminated properties known as brownfields. Through those programs, Norton said money is set aside to help clean up property in transition.
The Journal Gazette's Matt LeBlanc contributed to this story