If you own it already – remember Pandora’s box

25 Jan 2011

Pandora's box

If you own a parcel of  non-residential rental property – should you do an environmental assessment of it when your lease ends?  Many landlords think that at the end of each tenant’s lease they should evaluate all aspects of the tenancy, including environmental conditions.  Often, the lease will require the exiting tenant to conduct such an assessment.  While this is a good concept, is it always a good practice? 

After Prometheus stole fire from Mount Olympus, as punishment, Pandora was given a jar and was ordered not to open it under any circumstances. Overcome by curiosity, Pandora opened the jar allowing the evils contained within to escape into the world.

So too may a landlord discover serious evils by conducting an environmental assessment.  Once you’ve asked “do I have an environmental problem?” you can never “un ask” it and so, before asking, you must consider  “what if I find a significant environmental problem under my property?  What then?”

1. You may be obligated to inform your lender who might default you.

2. You will certainly have to exercise due care to prevent exacerbation and impacts to third parties (including other tenants).

3. You may have to notify the other tenants who might walk out on their leases.

4. You may be obligated to notify prospective tenants.

5. You may have to notify neighbors (if they are being affected) who might sue you. 

6. Practically, you may have to clean it up to try and mitigate some of the above and preserve the property’s value if the former at-fault tenant is not capable to (or willing to) deal with it.  If the tenant doesn’t – and you do, you will have a cause of action against the former tenant, but what if they aren’t collectible?  Even if they are collectible, litigation may be slow and painful.  Often, with multiple tenants in one spot running the same sort of business over a period of years, it is difficult to tell which tenant caused the problem. 

Certainly, lenders and new owners and, in some cases, new tenants, may demand a new assessment.  In that case, you would have little choice.  But when a tenant leaves without any other issue, but you need to think through the “end game” before you take the “lid” off that “box.”

Leave a Comment to “If you own it already – remember Pandora’s box”

  1. Mike Kulka 31. Jan, 2011 at 8:50 am #

    This is a great point. As a due diligence provider we have seen increased requested for entrance/exit Phase I ESAs from tenants and landlords. Few investigate RECs, if identified, but appear to be interested in a third party document to establish “what was, what could be there”

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