Who Pays? Protect Yourself

     LANDLORDS BEWARE!  Commercial and Industrial Property Owners continue to face financial risk from environmental contaminants to their properties caused by their tenants. Under EPA's Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), property owners (not tenants) are the "potentially responsible party (PRPs)" whose deep pockets often fund environmental cleanup costs.

     KNOW YOUR TENANT!  Under the joint and several liability provisions of CERCLA if the tenant is insolvent, property owners can be held solely liable for the entire cost to cleanup a site. This can occur regardless if the contamination happened many years in the past or for contamination which the property owners did not cause.

Claiming ignorance is not a solution!

     CERCLA "third party defense" is where the PRP establishes that the release of hazardous substance was solely by the act or omission of a 3^rd party with whom the PRP had no contractual relationship. Further, the 3^rd party defense requires the PRP to exercise due care with respect to the hazardous substance and take  precautions against foreseeable acts or omissions by the 3^rd party. The courts have routinely ruled that this is not a valid defense since a lease constitutes a contractual relationship.  In addition, the burden of proof is on the property owner to demonstrate it took precautions against foreseeable acts or omissions of its tenant.

Seven Tips to Minimize Property Owners Liabilities.

1. Perform a Phase I Environmental Site Assessment: 
   
   A Phase I is a "commercially prudent and reasonable inquiry" to identify the presence of recognized environmental conditions (RECs) that may have an adverse environmental impact on a property. RECs mean the presence or likely presence of any hazardous substances or petroleum products on the property that indicate an existing release, past release or a material threat of release into the ground, groundwater or surface water. A Phase I is an "all appropriate inquiry into the previous ownership and uses of the property consistent with good commercial or customary practice" and satisfies one of the requirements to qualify for the innocent landowner defense under CERCLA.
   
   Warning: Know the limitations of Phase I's; Click here to download AET's White Paper on this topic. Make sure you hire the right environmental professional.
   
   
2. Complete a Baseline Environmental Assessment prior to tenant occupancy. 
   
   Re mediate RECs such as asbestos and lead-based paint prior to tenant leasing. Have an environmental professional evaluate the property or the tenant space. Keep photographic documentation of the site. Make sure your site specific baseline data forms the basis of the how clean is clean standard when the tenant leaves.
   
   
3. Notify your tenants in writing, of the presence, location and condition of REC's in their work space.
   
   Develop site-specific Operations and Maintenance plans for RECs on your property to manage these materials safely in-place. All renovations which potentially disturb REC'sshould be reviewed and approved by the landlord. Failure by the tenant to adhere to these notifications/plans should result in the tenant being responsible to cleanup the site to the landlords satisfaction and to meet the previous how clean is clean standard. Remember, cleanup standards can differ from state-to-state and city-to-city and depending upon the use of thesite.
   
   
4. Verify the financial stability of your tenants.
   
   Shifting the responsibility for hazardous cleanups to the tenants affords no benefits if the tenant cannot meet their financial obligations. Review the prospective tenants financial statement prior to leasing. Investigate the tenants proposed operations including the amount and degree of toxicity of hazardous substances used and waste generated. Have an environmental professional review the tenant's Material Safety Data Sheets for the chemicals/products used in their space and provide a professional opinion concerning their environmental risk. The lease should require tenants involved in hazardous substance activity to maintain insurance coverage for such activities including the landlord as the named insured.
   
   
5. Update/Amend your lease clauses/language
   
   A simple clause prohibiting the manufacturing, storage, disposal, transportation and use of hazardous substances on the premises is a good start. Landlords should also have the right of entry for inspection purposes and be promptly notified of any correspondence or violations from federal, state or local environmental regulatory agencies.
   
   

   Consider adding more teeth to your leases:
   
   a) Requiring an indemnity clause to reimburse the landlord for cleanup costs.
   b) Limiting tenant claims for damages such as loss of customers or business interruption.
   
        Remember, specific clauses added to a lease must be followed by both the landlord and the tenant. Failure by the landlord to uphold their obligations can expose them to additional liability.

6. Periodically reinspect tenant space.
   
   AET recommends the owner's trained maintenance staff perform a walk through inspection of the tenant space on at least a monthly basis. Have your environmental professional develop an inspection checklist and train your maintenance staff in what to look for. Keep documentation to serve as a benchmark by which to measure the environmental impact of your tenants activities.
   
   
7. Have your tenant provide you with a clean bill of health before leaving.

Case History:  Corrugated Box Manufacturer

     During tenant relocation, a rigger moving tenant machinery damaged asbestos containing pipe insulation in the manufacturing plant. Asbestos surface contamination resulted which was exacerbated by years of pre-existing paper dust/debris inherent with manufacturing process. The tenant by lease agreement hired an environmental professional and a remediation contractor to complete specified removal, repairs and cleanup activities.AET developed a remediation work plan, performed project oversight and final clearance and interacted with state regulatory officials on the project.

Know the definitions of the environmental terms used in your leases

     Reliance on the phrase "compliance with all existing laws" may not always protect you. Water damage and resulting mold may or may not be covered by your lease. AET recommends water damage and mold be covered by a separate clause.

How AET can Help you...

     AET has over 26 years of environmental consulting/contracting experience assisting property owners and tenants. Our environmental professionals have the right answers to RECs including asbestos, lead, USTs, spills, sewage discharge and water damage/mold which may affect your property.

Related Topics/Newsletters

     Check out AET's previous newsletters found on our website www.aetinc.biz regarding Dry Cleaners and Nail Salons in 2009. These are two high risk tenants associated with environmental contamination routinely found in commercial shopping centers.

Call 800-9696-AET or 610-891-0114 
to discuss any environmental concerns

Alan Sutherland has been a Certified Industrial Hygienist since 1978 with over 30 years of CIH-related environmental consulting experience. Hehas a Masters Degree in Environmental Science from Drexel University and is the founder/owner of Accredited Environmental Technologies, Inc. (In 1984). He is uniquely trained and licensed as an Environmental Professional in both the field and laboratory. He has been the founder of two AIHA Accredited Laboratories and a mentor to six (CIHs). Mr. Sutherland is also a Certified Hazardous Material Manager. He can be reached directly at 610-891-0114 or email a.sutherland@aetinc.biz.

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