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Environmental Liability Protection for Tenants

Facility lessees may be held responsible for contaminations that occurred under previous owners or tenants. How can you minimize the legal risk?

Feb/Mar 07
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Prospective Tenant's Environmental Checklist
• Step 1: Gather some inexpensive information. While a tenant might think of starting with a Phase I investigation, there are commercial services that, for a few hundred dollars, will gather information from various existing environmental databases to provide an idea of the historical uses of hazardous materials at and around a specific property. Understand that these reports are only as good as the information that was included in the databases, many of which are no longer maintained by the agencies that created them. For example, a manufacturing facility a short distance away with a history of environmental releases might not have any impact on a nearby facility if groundwater flows in the opposite direction from the site. As a result, often times these reports raise more questions than they answer. An EP may be required to do site reconnaissance and to meaningfully interpret the data, but a focused investigation, rather than a Phase I report, may be far more efficient both in terms of time (it can take 4-6 weeks to get a fully compliant Phase I report) and expense.

Using historical information alone is problematic if the target site is located in or adjacent to current or former industrial areas where manufacturing, heavy trucking, or rail activities have occurred since these are areas where releases of chemicals are common. Similarly, in suburban areas where there seems to be a proliferation of small and mid-size shopping centers, it is almost inevitable that a gas station or dry cleaning operation is or was located nearby. To determine if these potential sources are a threat to development, a detailed review of agency files might provide the answer. In most cases, though, site developers will need to take samples to determine if the target site has been impacted by a nearby source. However, even armed only with information from an inexpensive database search, a prospective tenant may be able to negotiate favorable lease provisions, offering some protections in the event contamination is uncovered or agreeing to share the cost of site testing with the landlord.

• Step 2: Determine if soil or groundwater sampling is necessary. If the tenant knows or has a reason to suspect that historical operations could have contaminated the soil or groundwater at the prospective site or adjacent properties, then it might also make sense to obtain access to the property and take soil, soil gas, and groundwater samples. Often, environmental sampling can be combined with soils testing and geotechnical investigations, further reducing the incremental cost. The benefit of obtaining samples even applies if you are only planning to move into a pre-existing facility and do not plan to disturb soil or groundwater; vapor intrusion is even more a threat from groundwater contamination in older structures that may have cracks in the foundation, separation at bearing walls, and pathways such as utility corridors that can facilitate the migration of vapors from the subsurface entering into the building.

• Step 3: Determine if further investigation is warranted. Depending on historical uses of nearby property and the availability (or lack thereof) of actual soil and groundwater data, it may make sense to obtain samples to determine if vapor intrusion is a potential problem. A word of caution: Appropriate sampling for vapor intrusion and corresponding safe levels of contaminants in indoor air are issues being hotly debated at the federal, state, and local levels. So taking samples to determine impacts to indoor air may not provide a definitive answer. Still, there may be circumstances where sampling makes sense to either assist in providing a level of comfort to the prospective tenant or to rule out a prospective location from further consideration. In any event, assistance from EPs with a background and understanding of vapor intrusion issues is strongly recommended.

The Bottom Line
Information about the soil and groundwater underlying a leased facility is an important factor in deciding whether to enter into a long-term agreement and how to negotiate the terms of the lease if adverse conditions are found that are capable of being mitigated at a reasonable cost. In some instances, a relatively inexpensive survey of available environmental information can provide a prospective tenant with some useful information that will assist in its due diligence and in negotiations with the landlord. But there are also situations where tenants may need to know more about the property and surrounding sites. In those instances, obtaining environmental samples can provide information that will avoid undue delay in development or unexpected costs.

Finally, there may be circumstances in which the additional analysis provided by a compliant Phase I investigation offers certain benefits or in which additional environmental sampling might be required. The prospective tenant needs to balance the cost of obtaining additional information with the risks of entering into a lease if there are significant questions about the condition of the underlying property and its impacts on future site operations.

Generally, unless the target site and adjacent and upgradient properties are totally clear of all suspected releases, at least preliminary site testing should be conducted to determine if there is soil, soil gas, or groundwater contamination at the site. Often, some screening level testing can be done at only a minimal incremental cost.

Jonathan W. Redding is an attorney and chair of the Environmental Practice Group at Wendel, Rosen, Black & Dean LLP and has extensive experience assisting clients with environmental due diligence and related issues. Greggory C. Brandt is an attorney and also a member of the Environmental Practice Group. Visit their firm's website at

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