Environmental Compliance 101

Taken from a previously published article in our newsletter:

Owning a commercial or industrial building can present unexpected environmental liabilities. A property owner is ultimately responsible for the environmental condition of the property which includes contamination caused by past or current tenants. Most of these environmental concerns and potential liabilities are unknown until a Phase I Environmental Site Assessment (ESA) is performed. Unfortunately, a Phase I ESA is typically driven by a property transaction and not by an expired lease. That does not mean an evaluation of your tenant’s hazardous material handling practices cannot be performed. This can be done quickly and in a cost-effective manner by having an Environmental Tenant Assessment performed. This assessment can be performed prior to leasing a space to a tenant in order to evaluate the environmental risks associated with that tenant and their operations or towards the end of a lease term prior to the tenant vacating the premises to evaluate what environmental liabilities have been left behind. This will provide the valuable information you need to take control of your environmental liability.

The Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) of 1980 created four classes of "covered persons" commonly referred to as "potentially responsible parties" or PRPs. Two of these PRPs include current owners or operators of the facility and past owners or operators of the facility at the time at which the hazardous substances were placed at the facility. This means you as the property owner or past property owner could be responsible for a release caused by your tenant a year or even 10 years after the release occurred.

An  Environmental Tenant Assessment calls for an environmental assessment of the tenant, the leased property while the tenant occupies the space, and/or prior to the termination of the lease term in order to establish environmental conditions at the leased premises at specific points in time. This will evaluate the operations within the tenant space, the hazardous material and waste handling practices and indications of a release for which you could potentially be liable. The goal is to establish whether the operations of a tenant caused or contributed to any contamination of the property during the term of the lease.

Three different types of Environmental Tenant Assessments can be performed. The first is performed prior to leasing to a potential tenant. This would provide an understanding of the company’s operation, past or current regulatory listings and violations as well as the potential for hazardous materials and/or waste storage in order to evaluate the potential environmental liability associated with the potential tenant.

The second type would be performed to periodically evaluate the tenant’s activities and practices. This scheduled or unscheduled inspection gives the property owner the reassurance that nothing has changed, tenants are abiding by any agreements made up front and identifies new noncompliance issues that should be addressed.

The third type would consist of an inspection of the tenant’s space and operation prior to the end of a lease term. This would identify potential areas of contamination caused by the tenant as well as ensure equipment is properly removed, chemicals are disposed of fully, tanks are removed without leaking, etc.

The scope of work for an Environmental Tenant Assessment can include an on-site reconnaissance of the tenant space supplemented by interviews with persons knowledgeable about the tenant site operations. Interviews with government officials (e.g., health department, fire department, etc.), research into tenant operations and a review of available environmental records concerning the tenant and associated tenant space are also included. The inspection is supplemented by a review of the environmental and compliance history for the tenant through a computerized database search maintained by state and federal regulatory agencies.

If the assessment reveals operations caused by the tenant potentially contaminated soil and/or groundwater, recommendations can be made to further investigate the site to determine the presence or absence of the potential contamination. That way, if contamination is found, the responsible party would be identified and liable for any potential cleanup costs prior to the termination of a lease.