November 2012 Bar Bulletin
 
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November 2012 Bar Bulletin

Minimizing Commercial Lease Risks Through Proper Environmental Due Diligence

By Michael A. Nesteroff

 

As real estate development and leasing begin to emerge slowly from the dark days of the Great Recession, it's important to remember that environmental considerations should not take a back seat to getting a deal done. In commercial leasing, just as in the purchase-and-sale context, parties disregard or minimize environmental issues at their peril. While there are many good reasons for doing some environmental due diligence, the primary reason can be summed up in five words - joint and several strict liability.

The Washington Model Toxics Control Act (MTCA), as well as federal statutes such as the Comprehensive Environmental Response Compensation & Liability Act (CERCLA), encourage, with a somewhat heavy hand, the expeditious cleanup of contamination. Liability under both MTCA and CERCLA can arise solely because of a party's status and without regard to whether the party caused contamination.

The statutes are broad enough to sweep up a lessor or tenant, even if neither of them actually caused a release of hazardous substances. Faced with the prospect of joint and several liability, a current owner or operator could be left with the whole tab for investigation and cleanup, as well as their own attorneys' fees and costs and those of any prevailing party if litigation results.

Thus, commercial landlords and tenants need to know as much as they can about the property's environmental condition before the lease commences, what operations will take place on the premises that might cause environmental contamination, and who is to be responsible for any investigations and cleanup so they can negotiate lease provisions accordingly.

Due Diligence

How much due diligence is necessary depends on what is being leased. A tenant in a shopping center or strip mall usually doesn't need a full environmental site assessment; but a ground lease tenant who will be developing a site should consider an extensive review. At a minimum, any prospective tenant should determine if there are any reported releases or cleanups and do a walk-through of the site to identify whether any potential red flags exist.

Documented releases of a hazard­ous substance can be found in one of the Washington Department of Ecolo­gy's on-line databases. The Facility/Site Database, http://www.ecy.wa.gov/fs, and the Cleanup Site Search page, at https://fortress.wa.gov/ecy/gsp/SiteSearchPage.aspx, provide access to information about a location or operation that has an active or potential impact on the environment, including state cleanup sites, federal Superfund sites, hazardous waste generators, solid-waste facilities, underground storage tanks, dairies and enforcement activities.

A site walk-through also can help identify if there are any indications of lurking environmental problems. Typically, this involves looking at what activities may have taken place on a property that could give rise to an environmental cleanup and checking nearby properties. Things like unmarked drums of chemicals with stains underneath, chemical odors or dead vegetation are all warning signs of potential problems.


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