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environmental liability buyout

An environmental liability buyout is when a third-party contractually assumes the ownership of the known environmental conditions in a given property.

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In exchange for a cash payment to a third party, the third party will assume all obligations for remediation and liability associated with known conditions. The assuming party will then complete all required remedial activities, negotiate with the Environmental Protection Agency (EPA) or other regulatory bodies, and provide a full indemnity to the "seller." Procedurally, the contractual assumption typically requires that the assuming party purchase an environmental insurance policy to backstop their indemnity. Thus, the ceding company will be protected in the event of the failure of the indemnitor. To protect the funds transferred to the third party, the contract's insurance provisions typically dictate the use of a finite risk insurance policy.