Caution – Hazardous Materials on Premises!

In an article I wrote for the March 2013 issue of Western Real Estate Business Magazine, “A Tenant’s Guide to Environmental Liability Risk Management in Commercial Leases,” I wrote about drafting and negotiating commercial leases to protect the rights of tenants who need to bring and/or use hazardous materials on their leased premises.

Recently, the Department of Labor & Industries cited Wade’s Eastside Gun Shop, Inc. for 17 violations of worker safety and health rules at the business’s indoor firing range, and fined Wade’s $23,480.00 for exposing its workers to lead.  Wal-Mart entered a guilty plea on May 28 in response to charges that its employees improperly disposed of hazardous waste, and has been fined almost $82 million.

From an owner’s/landlord’s perspective:

Building owners should be especially cautious in leasing to tenants using not only “hazardous materials” such as gasoline, kerosene, and pollutants, but also substances known to be potentially hazardous to health.  In preparing leases, a landlord should carefully consider the permitted use clause and think through the possible liability that can be attributed to the landlord due to ownership of the building.  The landlord should also consider the condition of the premises after a tenant vacates.  A landlord may need to expose its own employees and contractors to such hazards if a tenant does not properly clean and remediate the premises at the termination of the lease.  An adequate and carefully crafted indemnification clause in favor of the landlord and insurance coverage can provide needed protection.

From the tenant’s perspective:

Tenants using or storing hazardous materials in their leased premises will want to be very cautious about unintentionally committing a default under their lease.   When improperly disposing of, storing, using, or transporting hazardous materials on or across leased premises, a tenant risks not only violating applicable laws, but also breaching its lease.  A standard clause in most commercial, retail leases will state that a tenant is in material default of the lease if it breaches any of the covenants relating to hazardous materials and violations of environmental laws.  Failure to properly dispose of, store, or disclose the presence of hazardous materials often constitutes a breach of a tenant’s covenants and can result in termination of the lease by the landlord and extensive liability to the tenant.