Negotiate Hazardous Materials Cleanup with Medical Tenant

Medical office tenants may pose environmental and safety risks if they generate hazardous materials and medical waste. Contamination of space can be a nightmare for you, but you can ameliorate this by requiring the tenant to return the space in the same condition that it was in when the tenant first got it. While you should leave room for the typical “ordinary wear and tear” caveat, it’s crucial to say in the lease that the tenant must leave the space uncontaminated. If you don’t carefully negotiate this, you could be left paying for the cleanup effort.

One issue that is non-negotiable is who will pay all the costs of the cleanup process. The tenant should be solely responsible for paying those costs if it contaminated the space. There are also two key financial protections that owners should negotiate with a medical office tenant: (1) whether the tenant must give a larger-than-usual security deposit and/or get specialized insurance to protect the owner from contamination risks or costs; and (2) whether the costs incurred by the building owner in dealing with medical waste or protection against contamination can be “passed through” to the tenant.

You should also explore what rights and protections you want to have if the tenant doesn’t meet its assessment and cleanup responsibilities. State laws may limit what building owners are entitled to. But you should discuss with your attorney the actions that you can take against the tenant—for example, treating the tenant as a holdover tenant if the cleanup process continues beyond the original expiration date, or extending the lease term if the cleanup process continues beyond the original expiration date, rather than treating the tenant as a holdover tenant. Find out whether you can make the tenant liable for “consequential damages” under the lease’s indemnification clause if an incoming tenant is lost because the medical office tenant didn’t meet its assessment or remediation responsibilities.