Don’t Let Environmental Concerns Drive Lease Negotiations

Dry cleaners, gas stations, and auto service centers provide goods and services that many people don't want to give up. But the chemicals they require to operate their businesses pose potential environmental risks at the properties where they operate. If you're nervous about leasing space to an environmentally risky tenant, but the deal is too good to give up, you can limit your liability by negotiating protections at three stages: before, during, and after the lease term. Mitigate your risks by:

Performing thorough pre-lease due diligence. Consider establishing the health of your property prior to the tenant’s term. If you’ve determined that you should test the property, remember that the exact nature of the tenant will dictate the type—and scope—of the testing that’s performed.

Getting protection from dangers arising during lease term. During the lease, environmental damage or issues can happen in your building itself or on the property. You’ll want to make sure that you’re protected from liability for both if you didn’t cause them. In your lease, negotiate that the tenant:

·         Won't disturb hazards;

·         Will provide notification of spills;

·         Will get appropriate insurance coverage; and

·         Will comply with laws.

Holding tenant liable after lease ends. What happens if you discover down the road, after the tenant has moved on, that there’s damage? One way to protect yourself is to do another due diligence or baseline report before returning the tenant’s security deposit, to show what the tenant may have done to your property. And negotiate upfront who will pay for the cost of a baseline report to figure out what condition the post-tenancy property is in.

For more ways to broaden your protections in your lease with a tenant running a risky business, see "Limit Liability in Lease with Environmentally Risky Tenant," available to subscribers here.