"Wouldn't I be in a more favorable capital gains position if we scheduled the closing by December 31?" I asked.
"Gee," he responded. "I never think that much about taxes." When I do a business deal, I never stop thinking about taxes. I told him to schedule it for December.
The problem is that the world has become too complex to expect a practicing professional to be comfortably familiar with all the elements affecting his or her craft. Professionals and their clients need input from specialists in many areas. And nowhere is this truer than in the realm of real estate law.
When a veterinarian decides to open or move a clinic or hospital, there are a multitude of considerations that need to be analyzed prior to execution of a long-term lease or building purchase. The ones that come to mind first (and that most consultants obsess about) are traffic flow, demographics, visibility, parking and zoning.
But there's an additional legal area that needs careful consideration from a veterinarian and his or her counsel. In fact, the area of environmental law may be the most critical of all in the real estate acquisition decision.
Poor advice or inadequate attention to the laws related to groundwater contamination, vapor migration and other factors could be economically devastating to a property buyer. The purchasing doctor can be left holding the bag for a costly cleanup. His or her estate can be complicated by spills and leaks that occurred prior to ownership. The new owner can even end up paying property taxes indefinitely on land that can't be built on or a building can't be legally occupied.
Avoid tunnel vision
Love and emotion are not limited to residential purchases. They can take hold of commercial buyers as well. When the excitement of starting a practice or moving to a more visible location takes hold, a veterinarian can become overwhelmed with the positive attributes of a building and miss the most important characteristics of the real estate. Lots of traffic doesn't compensate for a declining neighborhood. An upscale neighborhood doesn't make up for the fact that a building lot is in a flood plain.
A veterinarian and his or her attorney need to take a good, thorough look at a potential real estate purchase and identify whether there are any deal-breaking environmental issues. It's critical not to "hope for the best" or "let the person I sell to in 20 years worry about it."
The fact is that environmental law relating to land and buildings can be unforgiving. Depending on jurisdiction, landowners can be charged with responsibility for contamination and toxic materials mitigation in circumstances where they never knew issues existed. They can even be held responsible for cleanup in cases where the property was "clean" at the time of acquisition but subsequently became contaminated through no fault of the owner.
For example, if Dr. Smart spends the time and money to obtain a clean bill of health for the corner lot where he subsequently constructs a veterinary practice, he may later be unable to sell that clinic when a nearby chemical plant closes up shop and walks away from seeping ground contamination.
A subsequent purchaser won't care how hazardous fumes ended up emanating from the basement of Dr. Smart's clinic. She just won't buy the place until Dr. Smart spends whatever it costs to make the problem go away. Of course, Dr. Smart might have a claim against the chemical company for the cleanup costs. But good luck proving the source of the contamination, coming up with the funds to battle the defendant chemical company, and concluding the litigation.
Conduct your own independent research
When you purchase real estate, it's likely that your attorney or your lender will require a relatively superficial environmental review of the property prior to closing. This on-site analysis, performed by an environmental engineer or other professional, is often required in order to obtain a mortgage. If the review shows potential issues, then ordinarily a more detailed assessment is undertaken.
But the buyer should never rely solely on this cursory environmental study. Once the title to the property has been transferred, the hot potato now rests in the hands of the purchaser and with it comes responsibility for any toxicity issues associated with the property. What you don't want to do is to pay a mortgage for 20 years only to discover that you own 100 percent of a property that you can never sell. So what more can you do to put your mind at ease? You can use your own investigative skills and common sense to identify certain external risks.
Consider nearby manufacturing facilities. Localities across the country are littered with abandoned plants that in their heyday maximized profits through the sidestepping of environmental laws. A perfect example is the Love Canal region of Upstate New York. Even with operational facilities, if it costs less to pay a fine for creating an environmental mess than it would to dispose of toxins properly, there's a good chance the company will make the mess. And if a company can simply relocate its way out of an environmental disaster, it likely will do that as well. What you don't want is to be a landowner down the street from a contaminating factory; look the whole area over before you take title.
Scout out subsurface venting systems in the area. An on-site investigation of potential environmental issues at the building you want to buy probably won't reveal regional contamination that neighbors have already had to spend money to mitigate. In order to uncover those, talk with the owners and tenants of nearby properties. Ask if they (or the government) have had to install basement or slab ventilation systems to reduce air contamination. Also, make it a point to walk the area and see if you spot unusual plumbing and venting on nearby lots or buildings. What might they be venting?
Notice nearby laundry and dry cleaning businesses. The waste disposal and toxic dumping rules of today are not the rules of yesteryear. And past compliance with laws that did exist was sketchy or worse. Ask any dry cleaning shop owner how much it costs her to have her cleaning chemicals legally disposed of and she'll surely roll her eyes and sigh. That's because it costs plenty. But in decades past it used to cost many such business owners nothing. They simply dug a big cistern out back and poured the nasty into it.
Migrating dry cleaning chemicals are a tremendous problem for nearby landowners, especially when the dry cleaner that caused the contamination has gone out of business or ownership has changed. It's best to assume as a property purchaser that you will never be successful in making a claim against such a polluter.
In short, do whatever is necessary to make sure your land is unaffected by possible indiscretions down the street. In the world of environmental law, a pound of prevention can be worth a great deal of money and unimaginable headaches. You'll wish you'd been more careful if you eventually discover that you own a contaminated building you literally cannot give away.
Dr. Christopher Allen is president of the Associates in Veterinary Law PC, which provides legal and consulting services to veterinarians. Call (607) 754-1510 or email