Environmental liabilities from former sites: Liability prevention in contracts

Mgr. Jiřina Šlesingerová
Mgr. Jiřina Šlesingerová
9.6.2026 | ARROWS law firm

Environmental burdens from former industrial sites represent a significant legal and financial risk for investors, developers, and manufacturing companies in the Czech Republic. Contamination of soil, groundwater, or buildings may result in costly remediation, delays in permitting processes, restricted financing, and, in extreme cases, the complete blocking of the entire project. These risks can be substantially reduced only through a combination of technical and legal due diligence, realistic purchase price setting, and precise contractual allocation of liability.

The illustrative image depicts a lawyer addressing issues related to historical land contamination.

Key takeaways

  • Although the buyer is not automatically liable for historical contamination they did not cause, they must tolerate remediation works and, in practice, without resolving the contamination they often cannot implement a new construction project.
  • The purchase agreement alone is not enough. Environmental due diligence is essential, combining legal analysis, technical investigation, work with databases, and an assessment of communications with authorities.
  • The agreement must precisely regulate the seller’s representations and warranties, indemnities, liability caps, escrow or other security, allocation of remediation costs, and the procedure for proceedings before authorities.
  • For brownfields, it is necessary to distinguish between an old environmental burden, environmental damage, and ordinary defects of real estate. Each category has a different liability regime and different impacts on the transaction.
  • Underestimating environmental risks leads to additional costs, disputes, construction delays, problems with bank financing and, in serious cases, even personal liability of management.

What environmental burdens are and why they are risky

An environmental burden is not just contaminated soil or an old tank with chemicals. It is a situation where pollutants at a site threaten soil, water, ecosystems, or human health. 

Typically, these are remnants of industrial production, landfills, petroleum substances, heavy metals, chemicals, asbestos, or contamination from military or intensive agricultural activities. Moreover, contamination can spread via groundwater beyond the boundaries of the site.

For entrepreneurs, it is crucial that many of these sites are located in brownfields. These are commercially attractive due to their location, existing infrastructure, and transport accessibility. At the same time, they carry the risk of hidden burdens that can increase the cost of the acquisition and fundamentally change the project’s economics. 

A greenfield offers a cleaner start, but usually requires building utilities and is associated with pressure to take up new land. A brownfield can be more economically advantageous, but only if environmental risks are identified in advance, valued, and contractually addressed.

It is necessary to distinguish between an old environmental burden and environmental damage. An old environmental burden typically arose before modern regulations took effect, and its originator often no longer exists or cannot be traced. 

Environmental damage is a modern legal concept applying to damage to natural resources arising from operational activities after August 2008, typically at high-risk operations. In the case of environmental damage, strict objective liability of the operator applies, along with an obligation to take preventive and remedial measures.

Legal framework of liability

Liability for environmental burdens rests on several layers. In public law, this mainly involves the prevention principle, the prohibition of excessive burdening of an area, and the “polluter pays” principle. 

In practice, however, this principle runs up against situations where the polluter no longer exists, cannot be identified, or is insolvent. Authorities then address the defective condition with the owner or operator, even though their liability may not be identical to that of the original polluter.

In the case of old environmental burdens, the current owner cannot automatically be required to finance remediation of historical contamination they did not cause. However, the owner must tolerate remediation works on their land and, when actively dealing with a contaminated site, must prevent the spread of contamination.

If they want to build on the site, they are often effectively forced to address the contamination, because the building authority may condition the permit on remediation or reject the project. In the case of environmental damage, liability is stricter. The operator of a high-risk activity is liable for the outcome regardless of fault and must act immediately when damage is threatened. 

The obligation to remedy may also pass to the operator’s legal successor, for example in a transfer of an enterprise or a merger. In a share deal, the buyer therefore does not take over only assets, but also the company’s regulatory history and the potential obligation to remediate earlier damage.

In addition to the public-law dimension, there is also private-law liability between the seller and the buyer. Contamination of land, water, or buildings may constitute a hidden defect of the real estate. The buyer may claim a discount on the purchase price, removal of the defect, damages, or, in extreme cases, withdraw from the agreement. 

For real estate, defects must be asserted within statutory or contractual time limits; in B2B transactions, liability for defects can be contractually modified, but intentional concealment cannot be effectively covered.

The third layer is criminal and management liability. Serious pollution, ignoring incidents, failure to report leaks of hazardous substances, or concealing risks may give rise to liability of statutory bodies. 

For management, it is therefore essential to have environmental compliance in place, regular audits, internal procedures for incident reporting, and documentation of decision-making in line with the duty of due managerial care.

Sanctions and remedial measures are also practically significant. Contamination may lead to orders for remediation works, suspension of activities, restrictions on a construction project, monitoring obligations, or fines imposed by the Czech Environmental Inspectorate (ČIŽP), water authorities, or waste management authorities. 

The financial scope of the remediation itself often exceeds ordinary contractual disputes, because for larger sites it can amount to tens of millions of Czech crowns.

Environmental due diligence before signing

Before signing an agreement to purchase a site, it is essential to carry out environmental due diligence. Its aim is to identify, describe, and qualify environmental risks before taking over assets or a company. It is not only a technical audit, but a combination of geology, hydrogeology, chemical analyses, legal due diligence, and an economic quantification of impacts.

The legal part primarily reviews the history of waste management, the validity of integrated and other permits, inspections and sanctions by the Czech Environmental Inspectorate (ČIŽP), water authorities and building authorities, the existence of environmental agreements with the state, ongoing administrative proceedings, and contracts that may transfer liability. In a share deal, it is necessary to separately assess the company’s obligations as an operator and the risk of transfer of obligations to a legal successor.

The technical part includes a physical inspection of the site, a preliminary or detailed investigation of soil, groundwater and structures, sampling, and risk analysis. The due diligence outputs serve as a basis for negotiating the purchase price, escrow, indemnities, closing conditions, and the future permitting process. Without these data, it is not possible to realistically determine whether the transaction makes economic sense.

A key public source of information is the Contaminated Sites Register System (SEKM). A negative record should always lead to a deeper investigation. It is also necessary to review IPPC, operating permits, emission limits, baseline reports, and documentation relating to environmental agreements with the Ministry of Finance and the Ministry of the Environment. 

For privatised sites, it is crucial to determine which environmental liabilities the state actually covers, what stage the remediation is at, and how much of the financial guarantee remains. A typical mistake is relying on the seller’s general statement that the site is “problem-free”. Without an independent survey and verification in relevant databases, such assurance is weak. 

Another mistake is ignoring the site’s historical use, insufficient coordination between lawyers and technical experts, failure to verify the limits of the environmental agreement, or underestimating the time needed for surveys and analyses. For larger sites, a proper review can take months, which must be reflected in the transaction timetable.

Contractual prevention and documentation set-up

Proper transaction documentation is the main tool for allocating environmental risks between the seller and the buyer. The first strategic decision is the transaction structure. In an asset deal, the buyer acquires defined assets and it is easier to separate the seller’s historical liabilities. 

In a share deal, the buyer acquires the entire company, including its history, permits, liabilities and potential environmental responsibilities. A share deal may be advantageous for maintaining operating permits and environmental agreements, but it typically requires more robust buyer protection.

The foundation is specific seller representations and warranties. A general assurance of proper condition is not enough. The seller should expressly confirm which technical reports, surveys, administrative decisions, environmental agreements, permits and contamination records have been provided, whether any other liabilities are known, which substances were historically used on the site, and whether any proceedings or inspections are ongoing.

Known contamination must be precisely described in an annex, including its scope and estimated costs.

For material risks, it is advisable to agree indemnities. This is the seller’s obligation to compensate the buyer for defined future costs, fines or expenses linked to the past. The advantage is that the buyer does not always have to prove a breach of the seller’s obligations in a complex manner; what matters is the occurrence of the agreed loss event. 

For environmental risks, liability caps should be significantly higher than for standard commercial warranties, often up to a substantial portion of the purchase price.

The agreement should also clearly regulate the allocation of remediation costs. It can be agreed that the seller will complete the remediation at its own expense, that the buyer will carry it out with subsequent reimbursement, or that part of the purchase price will remain in an escrow account and be released upon meeting remediation milestones. 

Escrow protects the buyer against a situation where, after receiving the full price, the seller loses the incentive to complete the remediation or provide cooperation.

The documentation should also include a procedural manual for communication with authorities. It must be clear who makes notifications in the event of an incident, who communicates with the Czech Environmental Inspectorate (ČIŽP), the water authority and the building authority, who pays for expert opinions, and how the other party will be informed about inspections and proceedings. Without such rules, there is a risk of losing entitlement to compensation, procedural errors, or fines for late notification.

The role of the state and environmental agreements

For large industrial sites, it is necessary to verify whether the location is covered by an environmental agreement concluded as part of privatisation. In these agreements, the state undertook to pay the costs of removing specified historical environmental burdens, usually up to an agreed financial limit. For an investor, this can be a major advantage, but it is certainly not 100% protection.

An environmental agreement covers only precisely defined burdens and only up to the amount of the guarantee. If the guarantee is exhausted, if a different type of contamination is discovered, or if the required remediation exceeds the approved scope, additional costs may fall on the current owner. 

A practical issue is also the lengthy nature of state-led remediations, public procurement for remediation contractors, and a timetable that often does not match the needs of a development project. An investor who needs to build sooner may be forced to pre-finance the remediation from its own resources.

Before the acquisition, it is therefore necessary to obtain: the environmental agreement itself, amendments, decisions of the Ministry of the Environment (MŽP), the status of drawdown of the guarantee, the work schedule and an overview of findings to date. The contractual documentation between the seller and the buyer must address who will bear costs beyond the state guarantee, who will liaise with the ministries, and how to proceed in the event of state inaction.

Practical scenarios

A developer purchasing a brownfield for residential construction typically faces the highest risk. Contamination that was acceptable for heavy industry may be entirely unacceptable for housing. 

Before purchase, a detailed survey of the subsoil, groundwater and structures, including asbestos, is required. The purchase price should reflect the costs and time of remediation, or part of the price should be retained in escrow. The agreement must also cover new contamination hotspots discovered only during excavation.

A manufacturing business expanding into a neighbouring site primarily addresses continuity of permits, IPPC, and the risk that the acquisition will bring in someone else’s historical environmental burden. When expanding production, the authority may require an amendment to the integrated permit, an update of the baseline report, monitoring and remedial measures. 

The documentation must separate liability for historical contamination from the buyer’s future operations.

A private equity fund acquiring a manufacturing company should treat an environmental audit as a standard part of M&A due diligence. In a share deal, post-closing fines, remedial measures and historical operational liabilities are borne by the acquired company. 

The due diligence results must be reflected in specific warranties, indemnities, escrow, a bank guarantee or W&I insurance with appropriate coverage for environmental risks.

Potential issues

How ARROWS helps (office@arws.cz)

Undiscovered historical contamination: the buyer finds only after acquiring the site that there is a serious burden in the soil or groundwater requiring costly remediation.

ARROWS attorneys in Prague ensure coordination of environmental due diligence, verify registers and prepare contractual warranties. This makes it possible to shift costs to the seller or reflect them in the price.

Underused environmental agreement with the state: an agreement with the Ministry of Finance exists, but the client does not know its limits and drawdown conditions.

ARROWS attorneys assess the scope of the agreement, the remaining guarantee and assist in negotiations with the ministries. The goal is faster and more effective drawdown of state support.

Fines and remedial measures for breaches of the Water Act or the new Waste Act after the transaction closes.

ARROWS, a Prague-based law firm, represents the client in proceedings before the Czech Environmental Inspectorate (ČIŽP) and water authorities. It proposes procedural strategy and helps set optimal remedial measures.

Blocking of a building project permit under the new Building Act due to identified contamination on a brownfield.

ARROWS attorneys communicate with building authorities and specialists to align remediation and the permitting process. This helps prevent unnecessary delays to the entire project.

Unclear allocation of remediation costs between the seller and the buyer.

ARROWS, a Prague-based law firm, prepares detailed arrangements on the allocation of remediation costs and price reductions. The agreement will include precise calculations and caps.

Recommended steps before acquisition

A safe approach starts as early as the indicative offer stage. The buyer should build sufficient time into the transaction timetable for technical due diligence, require submission of all documentation on the site’s history, and already in the term sheet anticipate that environmental findings may lead to a price reduction, a change in the transaction structure, or a postponement of closing.

As a first step, it is advisable to review the historical use of the location, public databases, archival maps, and available decisions of administrative authorities. If there are indications of high-risk operations, a physical inspection and a preliminary survey must follow. 

Where significant findings arise, a detailed risk analysis is necessary to determine whether the contamination threatens health, water, soil, neighbouring land, or the intended use.

In the second step, the due diligence results are reflected in the deal economics. The buyer should know the expected remediation costs, timing impacts, and the effect on permits and financing. Only then can it be determined whether the risk should be addressed through a purchase price discount, an escrow account, a seller guarantee, an indemnity, a condition precedent to closing, or a combination of these tools.

In the third step, post-closing governance must be set up. The agreement should include specific cooperation obligations, document handover, the seller’s access to proceedings with authorities, rules for commissioning expert reports, and approval of costs. For longer remediation projects, it is advisable to establish milestones, reporting, and a dispute resolution mechanism so that remediation does not block the project longer than necessary.

Other important related aspects

In practice, public-law risk is not limited to remediation itself. The Water Act, the Waste Act, the Environmental Damage Act, construction law, industrial emissions regulations, and, for certain operations, the integrated pollution prevention regime also come into play under Czech legislation. Breaches of obligations may lead not only to remedial measures but also to fines. 

Under the Water Act, penalties can reach millions of CZK; for serious breaches in the waste area, up to tens of millions; and for environmental damage, sanctions arise particularly where notification, preventive, and remedial obligations are not met.

Risk vis-à-vis neighbours is also important. If contamination spreads via groundwater or other pathways beyond the site, affected persons may claim damages and authorities may require measures extending beyond the boundaries of the owner’s land. The investor must therefore examine not only “its” site in the due diligence, but also the surrounding hydrological and operational context.

For foreign investors, it is often necessary to explain the specifics of the Czech environment. Under Czech law, there is no general safe harbour for an innocent acquirer of a brownfield that would automatically protect them from the impacts of historical contamination. 

Foreign transaction documentation standards therefore need to be adapted to Czech public-law rules, the slower drawdown of state guarantees, and the procedural practice of administrative authorities.

Environmental risks have a direct impact on financing. Banks typically require a clear status of the collateral, survey results, quantified remediation costs, and legal certainty that the burden will not block permits or a future sale. Undiscovered contamination can significantly reduce the value of the collateral and jeopardise the investor’s ability to finance or refinance the project.

Most common questions regarding environmental contamination

1. How can I find out whether a site is contaminated?

The first step is a historical analysis of land use and a check of SEKM (the Czech Register of Contaminated Sites). If manufacturing, fuel storage, chemical processing, electroplating, intensive agriculture, or military activity took place on the site, it is advisable to commission a preliminary hydrogeological survey followed by a detailed risk analysis.

2. Can a new owner pay for pollution they did not cause?

Not automatically in every case. For legacy contamination, the owner may be required to tolerate remediation and, in the context of their own construction project, effectively address it so that the building authority in the Czech Republic will permit the project at all. In cases of environmental damage or where the operator is taken over, liability may also extend to a legal successor.

3. Is a standard purchase agreement sufficient?

No. For high-risk sites, the agreement must include specific environmental representations, warranties, indemnities, liability caps, remediation arrangements, escrow, and procedural rules for dealing with authorities. General “as is, where is” clauses are risky for the buyer.

4. What if contamination is discovered only after the purchase?

If it already existed at the time of handover and was not apparent from a standard inspection, it may constitute a hidden defect. The success of claims depends on promptly securing evidence, timely notification of the defect, and the wording of the purchase agreement. It is advisable to obtain an expert report immediately and review options for a price reduction, reimbursement of costs, or an indemnity.

5. Does an environmental agreement with the state guarantee payment for remediation?

No. It covers only defined burdens and only up to the agreed guarantee amount. If additional contamination is discovered, the guarantee is exhausted, or the state process does not match the project timetable, the investor must have contractual and financial mechanisms in place to manage the risk.

6. Why does it make sense to address environmental risks even before a future sale?

Unresolved contamination reduces the site’s value, complicates bank financing, and deters institutional investors. Timely identification, documentation, and, where appropriate, commencement of remediation increase asset liquidity and strengthen the seller’s negotiating position.

Conclusion

Environmental contamination is not merely a technical issue. It affects public-law liability, private-law claims, criminal exposure, financing, permitting processes, and the value of the investment. 

Without high-quality due diligence and contractual protection, an investor may take over a site that will require costly remediation or will block the planned project for the long term.

A safe approach rests on four pillars: timely environmental due diligence, precise quantification of risks, reflecting findings in the price, and robust transaction documentation. Key elements include specific seller warranties, indemnities, escrow, clear remediation rules, and well-thought-out communication with authorities. 

ARROWS advokátní kancelář helps clients connect the legal, technical, and transactional aspects so that risks remain under control and the project stays economically viable. 

If you are considering an acquisition, sale, or have doubts about a site’s environmental history, contact us at office@arws.cz.

Notice: The information contained in this article is of a general informational nature only and is intended for basic orientation in the topic. Although we take maximum care to ensure accuracy, legal regulations and their interpretation evolve over time. To verify the current wording of the regulations and their application to your specific situation, it is therefore necessary to contact ARROWS advokátní kancelář directly (office@arws.cz). We accept no liability for any damages or complications arising from the independent use of the information in this article without our prior individual legal consultation and expert assessment. Each case requires a tailored solution, so please do not hesitate to reach out to us.

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