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Lease Strategies

Product Overview

This LARG contains the following items:

Handling Environmental Issues in the Industrial Lease Termination Agreement, and the Lease Clause Critique: Selected Clauses from the Industrial Lease Termination Agreement.

Number of Single Spaced Pages: 12






This LARG looks at termination agreements for industrial leases. The first part lists several concerns normally covered in such agreements which relate to residual environmental liabilities that may survive the lease's termination. The Lease Clause Critique features extensive excerpts from a sample industrial lease termination agreement including comment. Several clauses which address environmental liability that may outlive the lease are included, as well as provisions which cover the details of the termination itself.

Handling Environmental Issues in the Industrial Lease Termination Agreement

A termination agreement for an industrial lease is theoretically no different from an agreement to terminate a retail or office lease. The agreement's mission is to divorce the landlord and the tenant by ending the lease prior to its stipulated expiration date.

In practice, however, the termination agreement for the industrial lease often must contain environmental provisions relating to the tenant's use of the property during the term--rarely a factor in termination agreements for office and retail leases. Environmental protections for the industrial landlord are particularly critical when the tenant's activities have or could have involved the use of hazardous or toxic materials during the term.

Asking the Right Environmental Questions

The environmental provisions contained in a particular industrial lease termination agreement are a function of the tenant's use and business operations on the property during the term. As a result, the landlord must be totally conversant with the tenant's activities during the term. Prior to the start of serious negotiations for the termination agreement, the landlord should be asking itself the following sort of questions:

  • Have the tenant's business operations included the use of hazardous or toxic materials?
  • Has the tenant been involved in chemical manufacturing? Were potentially hazardous materials stored on the premises during the term?
  • Was the tenant obliged to obtain hazardous materials special use permits relating to its business operations on the premises?

Addressing Environmental Liabilities

If the answers to any of these questions suggest that environmental liabilities may appear after the negotiated termination date in the termination agreement, the landlord may want to negotiate for language in the termination agreement requiring the tenant to:

  • Commission a thorough report by sophisticated consultants to inventory the site and relate soil samples to various locations on the premises. This sort of environmental report and soil inventory can establish whether the tenant's use of the property prior to the termination contaminated the site with hazardous substances;
  • Complete detailed disclosure statements which describe its use of any hazardous materials during the term, including:
  • the precise nature of the tenant's manufacturing activities;
  • the exact type of regulated or hazardous materials employed in these activities; and
  • whether the tenant has any knowledge of hazardous substance spills or contamination during its occupancy of the leased property.

Obtain an indemnity from the tenant for the costs of clean-up relating to contamination which occurred during the possession of the tenant. Such indemnities can be contained in the lease as well as in the agreement terminating the lease, but in any event they must expressly survive the termination of the lease. Even though the lease and/or the termination agreement contains an indemnity from the tenant for environmental contamination, environmental agencies will probably still view the landlord as a party potentially liable for clean-up costs of any environmental contamination which surfaces after the lease's termination, depending upon the exact nature of the enforcement action. For the landlord, this means that the financial strength of the tenant giving the indemnity is a critical issue. For the landlord, an indemnity is like a check from the tenant. It's great to have it, but the landlord must still be able to cash it when the time comes.



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