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 Tenant Environmental Audits: Pro-Active Property Management by Rosalie Skefich President & Founder of Custom Environmental Services |
Case History #1: A tenant’s manufacturing operation generates a lead-containing dust as part of a ceramic manufacturing process. The lead dust disperses throughout the facility, including the heating and air conditioning system, roof, and nearby soils. The tenant leaves the building. A prospective tenant has the dust sampled and analyzed. The results come back indicating high lead levels, unsafe for employee exposure. Because the previous tenant’s lease agreement did not include provisions for environmental impairment to the property, the property owner may be responsible for the cleanup. Case History #2: A tenant recycler of de-ionized water resin cylinders generates an acidic waste stream that is being discharged into the city sewer untreated. The facility sewer pipe has corroded and has caused underground soil contamination. Environmental investigations, sampling programs, and clean-up activities, amounting to tens of thousands of dollars, are required. The tenant believes the owner should have provided the facility with the proper piping, and is, therefore, responsible for the costs. The owner claims he was unaware of the facility operations, and believes that the tenant should pay the costs. Case History #3: A tenant electronic printed circuit facility uses nickel and cyanide electroplating baths as part of the manufacturing process. The circuits are rinsed in a sink connected to the city sewer. In addition, the operator pays little or no attention to spills and overall housekeeping. During floor washdowns, the bath spills flow to floor drains and out to the storm sewer system. The city waste water treatment facility notices unusually high levels of nickel and cyanide contaminants in their incoming stream and traces the source back to the printed circuit facility. The city public works department maintaining the storm sewer confirms the source of contamination. The tenant has since moved from the facility, and gone out of business. The property owner may now be liable for the past wastewater discharge violations. Would you like to avoid these unwanted scenarios? Help is available through use of the Tenant Environmental Audit process. The Tenant Environmental Audit process consists of six steps. 1. Pre-Lease Questionnaire A prospective commercial or industrial lease tenant should be asked by the property owner to complete a Pre-Lease Questionnaire to identify hazardous materials used, hazardous wastes generated, material transfer operations, housekeeping procedures, and employee training programs for materials management. The document serves to inform the property owner of the proposed operations, but also to protect the tenant from involvement in future problems for which he had no involvement. 2. Baseline Audit An environmental baseline audit of the property is essential for either the property owner or the tenant to be eligible for the "innocent purchaser" defense under federal law. This type of audit is not necessarily a property owner’s review of the tenant’s compliance with applicable laws and regulations, but, rather, an abbreviated compliance check and review of the tenant’s operations and the potential for leaving residual contamination behind. At the same time, the baseline audit should review the past use of the lease site and adjoining properties so that the tenant may be protected from future environmental liability cases involving previous tenants. The tenant may also want to consider investigating the property owner’s means to clean up substantial environmental problems. Another reason for the baseline audit is the California law that requires a property owner to give notice to prospective tenants if he or she knows or "has reasonable cause to believe" that a release of a hazardous substance is located on or beneath the property. The law also requires tenants to notify their property owners at any time that a release or a suspected release of a hazardous substance is located on or under the property. Typically, these reporting requirements are included in the lease agreement. Failing to provide such written notices can lead to financial civil penalties of up to $5,000 for each separate willful violation. 3. Lease Agreement Once the baseline audit is complete, a lease agreement is prepared or modified to help maintain the environmental integrity of the property and protect both the property owner and tenant from unnecessary liability. Remedies to issues identified during the baseline audit are typically included in the agreement along with enforceable conditions that detail the action items and schedule for tasks assigned to each party. At a minimum, the property owner should require the tenant to comply with all applicable laws, including environmental laws. Environmental attorneys may be extremely helpful in drafting or reviewing contract language for leases, property transactions, or deeds. 4. Re-Inspection Annual re-inspections of the tenant’s operations are an important pro-active tool to help protect the property owner and the tenant. The frequency of the inspections should increase depending on the amount of hazardous materials, how they are used, and the enforcement history of the tenant. Some may argue that the costs of these re-inspections may be shared between the property owner and the tenant. 5. Exit Audit Property owners should not wait until the week before the tenant leaves to conduct the exit audit. The audit is scheduled at least six months before the tenant’s departure to allow time to manage any issues that may be identified. Tenants are becoming much more sophisticated, and are requesting that property owners issue the departing tenant a "clean bill of health" so that they will not be brought into any litigation regarding environmental impairment identified on the property at a future date. Such a "clean bill of health" cannot be issued without first conducting an exit audit. 6. Management of Issues Using the enforceable conditions of the lease agreement, issues identified during the exit audit are resolved prior to the tenant’s departure. Here again, environmental attorneys may be helpful in apportioning costs among the potentially responsible parties. |
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