Environmental provisions in commercial leases: Part 2

Environmental provisions in commercial leases: Part 1

Landlords should be wary of giving broad representations regarding the environmental condition of their properties. It is difficult to know with certainty that a given property is free from hazardous materials, and even if that statement is qualified to landlord’s knowledge, it would be difficult to prove that one did not know of past contamination should it ever be discovered. Moreover, it is rare for land in developed areas to be entirely free of hazardous materials; the accretion of pesticides, traces of construction materials, automobile leaks and emissions, and everyday litter all contribute to ensure that if you seek to find hazardous materials, you likely will be successful. Giving an unqualified representation simply because the property is thought to be “clean” may  backfire if any such surprise contamination is discovered. It is preferable to base a representation as to the presence of hazardous materials upon the information in a specific environmental report (such as Phase I environmental site assessment) rather than upon general knowledge, and to limit such statement to the presence of hazardous materials in violation of environmental laws (which sets the bar higher than trace amounts that do not require any reporting or response actions but otherwise could lead to a purely technical breach of a representation or warranty).

Discussion of these factors need not make the prospect of leasing space on a property with pre-existing contamination appear daunting. From a tenant’s perspective, it is a matter of conducting proper diligence and confirming the presence of contamination or ongoing response actions.

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