Environmental Issues in Leasing Transactions

1) To comply with all federal, state, and local environmental, and health and safety laws during the term of the lease and to obtain permits and other governmental authorizations required by environmental laws for tenant's business and operations.

2) To obtain the landlord's authorization before storing, treating, or disposing of any substance or material which may pose a threat to human health or the environment, including any substance or material covered by any federal, state, or local law, including petroleum-related materials.

3) To obtain permits and other governmental authorizations required by federal, state, and local environmental laws for tenant's business and operations.

4) To notify the landlord in writing within 48 hours of (i) the existence of any release of any substance or material which may pose a threat to human health or the environment, including any substance or material covered by any environmental law including petroleum-related materials, (ii) violation of an environmental law, or (iii) other environmental condition that could subject the tenant or landlord to potential legal liability.

5) That, immediately upon discovery of a condition described in the preceding paragraph, the tenant shall, at its expense, cure or remediate the condition to the landlord's satisfaction. In the event that the tenant fails to cure or remediate the condition, the tenant shall be liable to the landlord for any costs arising from the tenant's failure to act, including reasonable attorneys' fees.

6) That, upon reasonable notice to the tenant and at any time during the term of the lease, landlord and landlord's representatives shall have the right, at its cost and expense, to inspect the premises and tenant's operations for the purpose of determining the existence of any release of hazardous substances and tenant's compliance with environmental laws. During such inspection, the tenant must cooperate with the landlord and the landlord's representatives by providing access to any area of the premises and any records pertinent to the inspection. In performing such inspection, the landlord and its representatives agree that they shall not unreasonably interfere with the tenant's operations.

7) The tenant shall, at the tenant's cost and expense, perform an environmental inspection of the premises within 30 days prior to the expiration of the lease and remove any and all hazardous substances the tenant used, stored, released, treated or disposed of at the premises. The inspection shall be performed by the tenant to the landlord's satisfaction by an environmental consulting firm approved by the landlord and include a visual examination of the premises and appropriate sampling of the premises.

8) To indemnify and defend the landlord for the tenant's violation of any environmental law, the commencement of an action by a regulatory agency or a third party against the tenant or landlord with respect to the tenant's use or occupancy of the premises, the release of any hazardous substance at the premises that is or was related to tenant's use or occupancy of the premises, and the tenant's breach of any provision of this lease. The tenant's obligation to indemnify the landlord shall extend to, and cover, any cost, expenses or penalties incurred in performing investigatory and remedial activities at the premises.

9) That the rights and obligations provided under this section of the lease shall survive the expiration of the lease.

The above provisions may be regarded as onerous from the tenant's prospective. The landlord may want to consider a friendlier version of the above points while still requiring the substance of what is outlined.

From the tenant's perspective, there may be a concern that the tenant will be held liable, as the operator of the premises, for contamination problems that were caused by other parties. As noted previously, while the tenant's liability as an operator is theoretically possible based on statutory requirements, there is very limited case law holding a tenant liable as an operator where the tenant did not contribute to the contamination. To the extent that the tenant is aware of contamination present at the premises, the tenant may want to consider obtaining an indemnity from the landlord for any liability imposed on the tenant. The tenant may also want to consider requiring the landlord to be responsible for any environmental problems caused during the tenancy that are not attributable to actions by the tenant.

In addition to subsurface contamination, asbestos can cause serious concerns. To the extent that asbestos-containing materials are present in the building, and the asbestos is not going to be removed, an operation and maintenance plan (O&M) should be in place. An O&M plan is not strictly required by law, but is extremely helpful to assure compliance with legal requirements and promote the protection of building occupants. An O&M plan should have a detailed description of all asbestos-containing materials present in the building, and describe a program for compliance with OSHA and other regulations. The O&M plan should describe worker training programs, notification, prohibitions on handling asbestos, and other points set forth in regulatory requirements. Typically, an industrial hygienist or other asbestos-trained professional should prepare the O&M plan. The O&M plan is heavily oriented toward the training and protection of maintenance workers. As a result, the landlord or the tenant should implement the O&M plan depending on which party is responsible for building maintenance.

Finally, both the landlord and the tenant should strongly consider obtaining environmental insurance to protect the parties from potential environmental liabilities. Environmental insurance is available to cover a number of potential risks including unknown pre-existing conditions, new releases of environmental contaminants, and third-party actions for bodily injury or property damage as a result of pre-existing or new environmental conditions.

The following clauses are suggested for the landlord's use:

1) Tenant agrees to comply with all federal, state, and local environmental, and health and safety laws (hereinafter referred to as “Environmental Laws”) during the term of this lease and to obtain permits and other governmental authorizations required by Environmental Laws for Tenant's business and operations.

2) Tenant shall notify Landlord within 48 hours in writing of (i) the existence of any release of any substance or material which may pose a threat to human health or the environment, including any substance or material covered by any Environmental Law including petroleum-related materials (hereinafter referred to as “Hazardous Substances”), (ii) violation of an Environmental Law, or (iii) other environmental condition that could subject Tenant or Landlord to potential legal liability.

3) Immediately upon discovery of a condition described in the preceding paragraph, Tenant shall, at its expense, cure or remediate the condition to Landlord's satisfaction. In the event that Tenant fails to cure or remediate the condition, Landlord shall have the right to cure or remediate the condition and Tenant shall be liable to Landlord for Landlord's costs, including reasonable attorney fees.

4) That, upon reasonable notice to Tenant and at any time during the term of the lease, Landlord and Landlord's representatives shall have the right, at its sole cost and expense, to inspect the Premises and Tenant's operations for the purpose of determining the existence of any release of Hazardous Substances and Tenant's compliance with Environmental Laws. During such inspection, Tenant agrees to cooperate with Landlord and Landlord's representatives by providing access to any area of the Premises and any records pertinent to the inspection provided, however, that in performing such inspection, Landlord and Landlord's representatives shall not unreasonably interfere with Tenant's operations.

5) Tenant shall, at Tenant's sole cost and expense, perform an environmental inspection of the Premises within 30 days prior to the expiration of the lease and remove any and all Hazardous Substances Tenant used, stored, released, treated or disposed of at the Premises. The inspection shall be performed by Tenant to Landlord's satisfaction by an environmental consulting firm approved by Landlord and include a visual examination of the Premises and appropriate sampling of the Premises.

6) Tenant shall indemnify and defend Landlord and Landlord's agents, servants, employees, officers, directors, shareholders, partners, and representatives from and against all liabilities, claims, actions, suits, demands, judgments, damages, expenses, penalties and costs, including but not limited to any injury or damage to any person or property associated, either directly or indirectly, with Tenant's violation of any Environmental Law, the commencement of an action by a regulatory agency or a third party against Tenant or Landlord with respect to Tenant's use or occupancy of the Premises, the release of any Hazardous Substance at the Premises that is or was related to Tenant's use or occupancy of the Premises, and Tenant's breach of any provision of this lease. Tenant's obligation to indemnify Landlord shall extend to and cover any costs, expenses or penalties incurred in performing investigatory and remedial activities at the Premises.

7) The rights and obligations provided under this section of the lease shall survive the expiration of the lease.

Due to the potential for extraordinary liability associated with contamination problems, landlords and tenants in commercial leasing transactions should address environmental concerns in the leasing documents. Subsurface contamination involving soil and groundwater concerns could result in substantial costs and liabilities for both parties. In addition, asbestos can present unique issues for both the landlord and the tenant. The landlord should be concerned that the tenant's operations will result in the contamination of the premises. The tenant should be concerned that existing contamination, whether soil, groundwater, the presence of asbestos, or other problems, could present liability issues for itself.

Environmental liability may be imposed under a number of federal, state, and local laws, including common law principles. However, environmental liability stems mainly from the federal Comprehensive Environmental Response Compensation and Liability Act (CERCLA), also known as Superfund. Under CERCLA, the present and prior owner or operator of property contaminated with hazardous substances may be held strictly liable for cleanup costs. The defenses under CERCLA are limited. In accordance with CERCLA liability, the owner could be liable for the tenants' resulting contamination. Similarly, tenants are concerned that, as an operator under CERCLA, they could be held liable. It must be noted that there is very limited case law under CERCLA holding a tenant liable where the tenant did not cause the contamination.

A landlord could substantially mitigate concerns associated with possible contamination caused by tenants' operations through a number of lease provisions. The landlord should consider requiring the tenant to agree to a number of provisions as follows:

1) To comply with all federal, state, and local environmental, and health and safety laws during the term of the lease and to obtain permits and other governmental authorizations required by environmental laws for tenant's business and operations.

2) To obtain the landlord's authorization before storing, treating, or disposing of any substance or material which may pose a threat to human health or the environment, including any substance or material covered by any federal, state, or local law, including petroleum-related materials.

3) To obtain permits and other governmental authorizations required by federal, state, and local environmental laws for tenant's business and operations.

4) To notify the landlord in writing within 48 hours of (i) the existence of any release of any substance or material which may pose a threat to human health or the environment, including any substance or material covered by any environmental law including petroleum-related materials, (ii) violation of an environmental law, or (iii) other environmental condition that could subject the tenant or landlord to potential legal liability.

5) That, immediately upon discovery of a condition described in the preceding paragraph, the tenant shall, at its expense, cure or remediate the condition to the landlord's satisfaction. In the event that the tenant fails to cure or remediate the condition, the tenant shall be liable to the landlord for any costs arising from the tenant's failure to act, including reasonable attorneys' fees.

6) That, upon reasonable notice to the tenant and at any time during the term of the lease, landlord and landlord's representatives shall have the right, at its cost and expense, to inspect the premises and tenant's operations for the purpose of determining the existence of any release of hazardous substances and tenant's compliance with environmental laws. During such inspection, the tenant must cooperate with the landlord and the landlord's representatives by providing access to any area of the premises and any records pertinent to the inspection. In performing such inspection, the landlord and its representatives agree that they shall not unreasonably interfere with the tenant's operations.

7) The tenant shall, at the tenant's cost and expense, perform an environmental inspection of the premises within 30 days prior to the expiration of the lease and remove any and all hazardous substances the tenant used, stored, released, treated or disposed of at the premises. The inspection shall be performed by the tenant to the landlord's satisfaction by an environmental consulting firm approved by the landlord and include a visual examination of the premises and appropriate sampling of the premises.

8) To indemnify and defend the landlord for the tenant's violation of any environmental law, the commencement of an action by a regulatory agency or a third party against the tenant or landlord with respect to the tenant's use or occupancy of the premises, the release of any hazardous substance at the premises that is or was related to tenant's use or occupancy of the premises, and the tenant's breach of any provision of this lease. The tenant's obligation to indemnify the landlord shall extend to, and cover, any cost, expenses or penalties incurred in performing investigatory and remedial activities at the premises.

9) That the rights and obligations provided under this section of the lease shall survive the expiration of the lease.

The above provisions may be regarded as onerous from the tenant's prospective. The landlord may want to consider a friendlier version of the above points while still requiring the substance of what is outlined.

From the tenant's perspective, there may be a concern that the tenant will be held liable, as the operator of the premises, for contamination problems that were caused by other parties. As noted previously, while the tenant's liability as an operator is theoretically possible based on statutory requirements, there is very limited case law holding a tenant liable as an operator where the tenant did not contribute to the contamination. To the extent that the tenant is aware of contamination present at the premises, the tenant may want to consider obtaining an indemnity from the landlord for any liability imposed on the tenant. The tenant may also want to consider requiring the landlord to be responsible for any environmental problems caused during the tenancy that are not attributable to actions by the tenant.

In addition to subsurface contamination, asbestos can cause serious concerns. To the extent that asbestos-containing materials are present in the building, and the asbestos is not going to be removed, an operation and maintenance plan (O&M) should be in place. An O&M plan is not strictly required by law, but is extremely helpful to assure compliance with legal requirements and promote the protection of building occupants. An O&M plan should have a detailed description of all asbestos-containing materials present in the building, and describe a program for compliance with OSHA and other regulations. The O&M plan should describe worker training programs, notification, prohibitions on handling asbestos, and other points set forth in regulatory requirements. Typically, an industrial hygienist or other asbestos-trained professional should prepare the O&M plan. The O&M plan is heavily oriented toward the training and protection of maintenance workers. As a result, the landlord or the tenant should implement the O&M plan depending on which party is responsible for building maintenance.

Finally, both the landlord and the tenant should strongly consider obtaining environmental insurance to protect the parties from potential environmental liabilities. Environmental insurance is available to cover a number of potential risks including unknown pre-existing conditions, new releases of environmental contaminants, and third-party actions for bodily injury or property damage as a result of pre-existing or new environmental conditions.

The following clauses are suggested for the landlord's use:

1) Tenant agrees to comply with all federal, state, and local environmental, and health and safety laws (hereinafter referred to as “Environmental Laws”) during the term of this lease and to obtain permits and other governmental authorizations required by Environmental Laws for Tenant's business and operations.

2) Tenant shall notify Landlord within 48 hours in writing of (i) the existence of any release of any substance or material which may pose a threat to human health or the environment, including any substance or material covered by any Environmental Law including petroleum-related materials (hereinafter referred to as “Hazardous Substances”), (ii) violation of an Environmental Law, or (iii) other environmental condition that could subject Tenant or Landlord to potential legal liability.

3) Immediately upon discovery of a condition described in the preceding paragraph, Tenant shall, at its expense, cure or remediate the condition to Landlord's satisfaction. In the event that Tenant fails to cure or remediate the condition, Landlord shall have the right to cure or remediate the condition and Tenant shall be liable to Landlord for Landlord's costs, including reasonable attorney fees.

4) That, upon reasonable notice to Tenant and at any time during the term of the lease, Landlord and Landlord's representatives shall have the right, at its sole cost and expense, to inspect the Premises and Tenant's operations for the purpose of determining the existence of any release of Hazardous Substances and Tenant's compliance with Environmental Laws. During such inspection, Tenant agrees to cooperate with Landlord and Landlord's representatives by providing access to any area of the Premises and any records pertinent to the inspection provided, however, that in performing such inspection, Landlord and Landlord's representatives shall not unreasonably interfere with Tenant's operations.

5) Tenant shall, at Tenant's sole cost and expense, perform an environmental inspection of the Premises within 30 days prior to the expiration of the lease and remove any and all Hazardous Substances Tenant used, stored, released, treated or disposed of at the Premises. The inspection shall be performed by Tenant to Landlord's satisfaction by an environmental consulting firm approved by Landlord and include a visual examination of the Premises and appropriate sampling of the Premises.

6) Tenant shall indemnify and defend Landlord and Landlord's agents, servants, employees, officers, directors, shareholders, partners, and representatives from and against all liabilities, claims, actions, suits, demands, judgments, damages, expenses, penalties and costs, including but not limited to any injury or damage to any person or property associated, either directly or indirectly, with Tenant's violation of any Environmental Law, the commencement of an action by a regulatory agency or a third party against Tenant or Landlord with respect to Tenant's use or occupancy of the Premises, the release of any Hazardous Substance at the Premises that is or was related to Tenant's use or occupancy of the Premises, and Tenant's breach of any provision of this lease. Tenant's obligation to indemnify Landlord shall extend to and cover any costs, expenses or penalties incurred in performing investigatory and remedial activities at the Premises.

7) The rights and obligations provided under this section of the lease shall survive the expiration of the lease.