If you’re concerned about environmental contamination or pollution in a commercial rental space (perhaps prior tenants used toxic materials), you’ll want to do some homework before signing a lease. This includes talking with the landlord, researching the building and the neighborhood, and (if necessary), hiring an environmental consultant for additional review. If you end up taking a particular property with no apparent environmental problems, you’ll still want to protect yourself from legal or financial responsibility for contamination that you didn’t cause; the right lease clauses can help you do this.
The first person to approach in your environmental sleuthing is the landlord. If you don’t ask, landlords are not likely to tell—because they may think that they have no legal duty to voluntarily disclose negative environmental information about their property or neighboring land. Once you raise the issue and ask for specifics, landlords are more apt to tell you what they know. That’s because both you and the landlord are legally bound to deal truthfully with one another during your negotiations.
If possible, look at the landlord’s repair and maintenance records for the building, and get details on any work done by an engineering firm or environmental consultant.
Your next step, which is fairly painless and low-tech, is to do some research on the building and the neighborhood. Talk to other tenants and neighboring businesses. Have government agencies inspected the premises in recent years? Have any repair projects, such as insulation replacement or excavations, suggested potential problems in the structure or soil?
Next, search the Internet to learn if there have been reported environmental problems in the area.
At this point, you may well decide that you face no real risk of encountering an environmental problem. But if you have doubts and still want to pursue a particular space, you’ll need to enter the next level of environmental troubleshooting, known as “Phase I” and “Phase II” Reviews.
A Phase I Review involves hiring an environmental consultant to extensively research the history of the site, building, and neighbors. The consultant interviews people who are familiar with the area (perhaps some former tenants or owners); looks at any aerial photos to help determine the past uses of the site; checks government records that would document past users of hazardous wastes at the site; and contacts the EPA to find out whether the site might be considered “sensitive.”
What should you do if the consultant’s Phase I report comes back with worrisome information? How significant is it that the site was once a gas station? What if there is a dry cleaning business next door that was the subject of a clean-up order years ago, or a now defunct tannery that operated a half-mile away?
Many tenants would be wise to walk away from the deal at this point, especially if they have other, “clean” prospects. But if you think this site is worth pursuing, the next investigative step is to ask for some actual testing of the structure or grounds for evidence of contamination. This type of review is known as a Phase II Review, which will either confirm or refute the disquieting information you learned in Phase I. It’s expensive, possibly involving engineers and chemists who may test for actual soil or air contamination and groundwater problems. Can you afford to do this kind of testing? Think of it this way: Since you may end up footing the bill for the cleanup if, indeed, there are real problems that appear during your tenancy, you can’t afford not to. In other words, if you can’t afford the Phase II testing, you can’t afford to lease this space and you ought to look elsewhere.
If you’ve decided that you have little risk of encountering an environmental problem—either because your own investigation yielded nothing worrisome or because a Phase I or II examination gave the property a clean bill of health—don’t put the issue completely out of your mind. You can’t totally rule out the possibility that you’ve missed something or that an accident in the future will place you at risk for paying for clean-up costs.
When you negotiate the lease, take a careful look at clauses called something like “compliance with laws.” Ideally, you’ll want a tenant-friendly compliance clause that requires the landlord to promise, or “warrant,” that the building is in compliance as of the time you take possession. If you are moving into a space previously occupied by a business like yours, make sure the lease requires the landlord to warrant that your own space is code-compliant for your intended business activities. This promise will insure that you won’t have to engage in expensive remedial compliance work as part of your renovations.
This article was excerpted from Negotiate the Best Lease for Your Business by Janet Portman.