By carefully managing environmental risks and responsibilities in deals involving leased property, both the lessor (property owner) and the lessee (tenant), can enter into the agreement confident that they have protected their own interests, while ensuring compliance with applicable regulations.

Leased Site Contamination Risks

There are risks associated with leasing and owning such contaminated properties, including:

• Legal and Regulatory Risks: Lessors or lessees may face legal and regulatory challenges related to environmental contamination. Depending on the severity of the contamination, there may be obligations to comply with environmental laws and regulations, conduct remediation activities, and obtain permits or approvals from regulatory agencies. Failure to meet these requirements can result in fines, penalties, and legal liabilities.
• Financial Risks: Addressing environmental contamination can be costly, requiring significant financial resources for site assessment, remediation, legal fees, and potential property devaluation. Additionally, contaminated properties may be difficult to sell or lease, leading to financial losses and decreased property value.
• Operational Risks: Contaminated properties may require additional precautions and safety measures to protect occupants and workers from exposure to contaminants. This can result in increased operational costs, disruption of business activities, and potential legal disputes with tenants or contractors.

Here’s a comprehensive overview of environmental considerations when entering into commercial or industrial lease agreements:

• Baseline Assessments: Before entering into any commercial or industrial lease agreement, it’s essential to assess and document any environmental risks associated with the property prior to occupancy.
  • A Phase One Environmental Site Assessment (ESA) will review past land use and potential contaminating activities on neighboring properties.
  • A Phase Two ESA, if necessary, will identify and quantify any existing contamination at that point in time.
• Environmental Compliance: The lease should address that operations on leased property comply with all applicable environmental regulations, including those related to waste management, pollution prevention, and hazardous materials handling, if applicable.
• Monitoring and Reporting: Lessees may be required to conduct ongoing monitoring and reporting activities to maintain compliance with environmental regulations and lease agreements. This could include groundwater monitoring, air quality testing, and reporting requirements to regulatory agencies and other stakeholders.
• Contamination Remediation: If the leased property has existing contamination issues, site owners may be responsible for remediation efforts as part of the lease agreement. If contamination takes place during the lease period, the lessee will likely be responsible for remediation caused by their activities. This could involve cleanup activities of soil and groundwater, asbestos or lead abatement, and other necessary measures to mitigate environmental risks.
• Agreement Reviews: We recommend that you consult with a licensed professional who specializes in Environmental Law. Environmental lawyers will help ensure there is clarity in terms of responsibility and liability for both the lessor and lessee. For example, contamination migrating from nearby sites is something that should be addressed in the lease, where typically the landlord would be required to investigate and pursue damages with the party causing the contamination. If this item isn’t detailed, it would not be clear who should bear the cost or responsibility.

The Role of Portfolio Reviews

For clients who own or lease a number of properties, Portfolio Reviews are a proactive approach used to protect and restore the value of their land and property investments, and strategically manage and mitigate risk including financial and legal liabilities.

Environmental portfolio reviews often start with a desktop study, including a site owner’s survey, and review of records for all sites and neighbouring properties, to rapidly gain insights into areas and contaminants of potential concern. This study will result in a list of recommendations as to whether any sites should be prioritized for on-site assessment based on identified risks.

The portfolio review can also be tailored for Building or Property Condition Assessments, which include information on building deficiencies and components requiring repair and makes recommendations for the allocation of maintenance funds. BCAs also provide a long-term breakdown of anticipated capital expenditures for building maintenance and repair, which can be factored into property financing agreements.

The portfolio review, and any ensuing reporting and results are private and confidential. Their insights can be highly valuable for planning, maintenance and compliance, as well as providing leverage in negotiations when the time comes to sell, lease or refinance a property.

Environmental Expertise, Customized Support

In the intricate landscape of commercial and industrial land lease negotiations, environmental factors play a crucial role in mitigating risks and protecting the value of your property investments.