City Must Pay Share of Asbestos Abatement Costs

A municipal tenant's lease had a rent escalation clause that required payment of additional rent based on the building's “operating expenses.” The lease said that operating expenses excluded certain capital expenditures. The owner included asbestos abatement costs in operating expenses when calculating the tenant's rent escalations. When the tenant didn't pay those escalations, the owner sued. The tenant argued that the asbestos abatement costs shouldn't have been included in operating expenses because they were an excluded capital expenditure.

A New York appeals court ruled that the asbestos abatement costs were properly included in operating expenses. If the lease didn't address the issue, local laws would have made the owner solely responsible for those costs. But the lease required the tenant to share the costs for “services, materials, and supplies furnished in connection with the operation, repair, and maintenance of…the Building.” And the lease didn't exclude asbestos abatement costs from operating expenses, although the parties knew about the asbestos problem, noted the court [P.A. Building Co. v. City of New York].