The Best Defense is a Good Offense
Property Owners: Protect yourself with an effective environmental management program
What’s the risk for property owners?
Under the strict, joint and several liability provisions of CERCLA (aka Superfund), property owners are potentially liable for cleanup costs on the same legal basis as the tenant who caused the problem. The costs associated with cleaning up contamination can be substantial, so the prudent land owner must take steps to implement leasing practices which minimize its liability exposure.
- Ignorance is not bliss – know your tenant!
Property owners have enough headaches without assuming liability for the environmental missteps of their tenants. Yet, if you, as an owner, do not take certain preventive measures, liability and costly cleanups might land right in your lap. This is particularly true if a tenant engages in activities that involve the handling of materials that might become environmental hazards. Such businesses include plating and metal finishing, printers, auto repair and machine shops, dry cleaners, and other businesses whose operations involving degreasing, paints and coatings, or other bulk chemicals.
- Smith’s Law Applies – write a strong, smart lease
According to Smith’s Law, Murphy was an optimist. It pays to anticipate life’s worst outcomes, because sometimes, something even more dire might happen. And more important, preparing for the worst can often prevent problems before they start. Begin by including strong language in your lease that will protect your interests, such as these suggestions from the Building Owners and Managers Association:
- Require prior approval before tenant renovation and also require approval of contractors;
- Be sure tenants have adequate insurance to pay for environmental clean-up, if necessary;
- Restrict incompatible uses, especially those that involve hazardous materials not currently part of the tenant’s business;
- Limit changes to the use of space;
- Specify indemnification for contamination caused by the tenant or those acting on their behalf;
- Include the right of the landlord to enter and inspect, including testing. Require a pre-departure inspection that also allows testing.
- Require the tenant within the lease to remediate any impacts that they cause your property 6 months prior to vacating the premises.
The lease is your most potent tool for protecting yourself and allocating responsibility between the owner and the lessee—before problems occur.
- Pick good tenants – your lease is only as solid as they are.
No benefits accrue to the owner who has skillfully crafted a lease to successfully shift responsibility for site remediation to a tenant that is unable to meet its financial obligations. Review the financial condition of prospective tenants carefully and remain vigilant once a lease has been signed. A failing business may prompt a tenant to lower its operating costs by using improper and illegal disposal practices. A tenant delinquent in rent payments is often more than just a collection problem; a challenging business climate can cause tenants to make decisions that put you, the owner, at risk.
- Details matter – schedule regular checkups!
A sound understanding of tenants’ O&M practices and environmental issues is a major component of the successful property owner’s risk management program. Remember, it is not what you expect but what you inspect that matters. Establish baseline conditions before your tenants move in and then monitor regularly throughout the term of the lease. An annual assessment can help to identify potential issues before they become substantial. Moreover, it reminds the tenants that you are engaged and encourages facility operation and management in an environmentally sound manner. Confirm the condition of your property before that lease expires! Keep good records to avoid complications when refinancing or selling your property.
- Take action – when you find problems, solve them.
Yes, one would think this guidance is so basic, it doesn’t even warrant repeating. In our experience, opting to “wait and see” or simply documenting a concern is not enough; your tenant’s problems can become your own if they are left unattended. Once you become aware of an environmental issue you need to deal with it properly and completely, otherwise it will come back to present a much bigger issue when you try to sell or refinance your property.
- Ask for help– there is no shame in getting expert advice.
Environmental regulations are complex and environmental control and remediation technologies are constantly evolving. You do not need to know every environmental rule, regulation, or remediation technology that applies to your situation as long as you are working with experts who do. We are here to help; and if we can’t, we will help you find the expertise you need.