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Lease Strategies

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This LARG discusses hazardous and toxic waste issues in commercial leases.

Number of Single Spaced Pages: 12



Hazardous and Toxic Waste In Commercial Leases


When an industrial tenant leases or ground leases industrial space or property for chemical or manufacturing purposes, it must take measures to protect itself against contamination present on the property caused by former owners, landlords or tenants. As a result, most knowledgeable industrial tenants make a thorough inspection of the premises prior to signing a lease and request expansive disclosures from the landlord and prior tenants (if such tenants are known and available).

Many tenants request that the landlord complete a disclosure document that details the industrial activities on the parcel prior to its possession of the premises. Some industrial tenants submit comprehensive questionnaires to landlords that cover the prior industrial uses of the property.

An Industrial Tenant's Environmental Checklist

The industrial tenant might want to consider taking the following actions when it is leasing industrial space that has been formerly occupied by other industrial businesses:

  • Conduct a physical investigation of the site, with environmental consultants knowledgeable in hazardous substances and toxic materials; physical investigations can concentrate upon obvious evidence of contamination (e.g., unusually colored earth, unusual odors, storage drums, and ponds or reservoirs of industrial materials), but should also pursue less obvious types of contamination upon the site.
  • Confer with state, federal and local environmental agencies concerning any contact that they might have had with owners or prior tenants on the site. This would include contacting the Environmental Protection Agency to determine whether it has any data concerning the site, contacting the state Environmental Protection Agency, and any state or local agencies charged with policing industrial discharges, clean air, and/or clean water. Finally, local fire departments are often a good resource concerning chemical manufacturing operations in their immediate area, and may know the history of particular manufacturing operations in their area of jurisdiction.
  • Search record documents for names of prior tenants engaged in chemical or manufacturing operations as disclosed in deeds and/or memoranda of leases.
  • Commission a thorough report by sophisticated consultants which inventories the site and relates soil samples to various locations on the site. This sort of environmental report and soil inventory will be extremely useful in establishing the condition of the site prior to the tenant's possession, especially if future environmental enforcement actions are commenced.
  • Request that the landlord complete detailed disclosure statements which cover whether any hazardous materials have been released on the site during the landlord's ownership of the property, or whether the landlord has any knowledge of prior hazardous substance spills or contamination before it acquired the property (e.g., contaminations disclosed in negotiations for the acquisition of the parcel).
  • Obtain an indemnity from the landlord for the costs of cleanup relating to contamination which occurred prior to the possession of the tenant. Such indemnities can be contained in the lease or in separate documentation, but in any event must expressly survive the termination of the lease and/or the sale of the property by the landlord.
  • Consider using a subsidiary corporation with limited assets as the tenant under the industrial lease or the ground lease, especially if the tenant is engaged in activities that could potentially contaminate the environment.
  • Require the landlord to give the tenant copies of any and all notices or inquiries from environmental agencies concerning contamination at the site, whether caused by the present tenant or earlier parties in possession of the site.
  • If the lease provides that the landlord's liability is limited to the landlord's interest in the property, exclude any environmental indemnities given by the landlord from that limitation.
  • In industrial park situations, exclude any costs and expenses of any environmental cleanup or compliance actions not relating solely to the actions of the tenant from the pass through provisions of the common area clause or the operating expense clause in the lease.
  • Perform an environmental inventory (e.g., with soil samples, etc.) prior to vacating the premises at the expiration or sooner termination of the term to protect against claims that the tenant is responsible for contamination on the premises which happened subsequent to the tenant's possession.
  • Consider establishing test wells to monitor whether any chemical levels are increasing on or near the premises, either caused by the actions of the tenant or by third parties with adjacent operations.
  • Negotiate a clause in the lease requiring the landlord to give the tenant a release for environmental liability at the end of the term if certain objective conditions are met.


End of Excerpt