ASBESTOS REMOVAL, AND SEISMIC RETROFITS!
HAVE YOU READ YOUR LEASE LATELY?

 

     Consider the lease issue presented by a government ordered abatement of asbestos contamination on your premises.  Is the Lessor or Lessee responsible for the abatement?

     In a California case involving a long term lease of a warehouse-type building in Los Angeles which was leased to a Cadillac dealership, the lessees, in the phraseology of the California Supreme Court, "did agree to a duty of repair that is, on its face, virtually global in scope."  The Court concluded that "the parties intended to transfer to the lessees substantially all of the responsibilities of property ownership, including the duty to comply with the county-ordered asbestos cleanup."

     The lease provided for a term of 15 years and included the following provisions:

          "Lessee shall, at lessee's expense, comply promptly with all applicable statutes, ordinances, rules, regulations, orders, covenants and restrictions of record, and requirements in effect during the term or any part of the term hereof, regulating the use by the lessee of the premises . . . .

          Lessee shall keep in good order, condition and repair the Premises and every part thereof, structural and non-structural . . . .  Except for the obligations of lessor [in the event of building destruction], it is intended by the parties hereto that lessor have no obligation in any manner whatsoever, to repair and maintain the Premises . . . all of which obligations are intended to be that of the Lessee . . . ."

The environmental cleanup was estimated by the plaintiffs' expert at $251,856.  In determining who should bear the burden of such a cost, the Supreme Court noted that courts usually apply a certain handful of factors in determining whether the lessee assumed the burden of such an expense.  The court noted six factors, and commented on those factors, as follows:

(1)  The relationship of the cost of the curative action to the rent reserved.

     Although $251,856 is obviously substantial, the cost was less than 5% of the total rent reserved over the 15 year life of the lease which involved monthly rental of $28,500.

(2)  The term for which the lease was made.

     The court concluded that a lease for a term of 15 years is a comparatively lengthy lease.

(3)  The relationship of the benefits to the lessee to that of the lessor.

     In this case, since the hazardous material was discovered in the third year of the lease term, the cleanup would be of substantial benefit to the lessees; however, the court concluded that the benefit of the required work would obviously serve the interests of both parties.

(4)  Whether the curative action is structural or non-structural in nature.

     Since this particular lease expressly absolved the lessor of any responsibility for repairs, whether or not structural, the court determined that the language of the lease was "sufficiently definite and clear to negate the argument that 'structural' alterations are not within the lessees' obligations."

(5)  The degree to which the lessees enjoyment of the premises will be interfered with while the curative action is being undertaken.

     The court noted that "it appears that the lessees were able to 'work around' the flaking debris through the expediency of moving the retail sales operation into the former storage area and storing inventory in the area subject to denomination."

(6)  The likelihood that the parties contemplated the application of the particular law or order involved.

     These lessees had "substantial experience in retail leasing and conceded that they had read and understood the notice at the foot of the lease proposal and elected not to pursue an investigation of that contingency."  The footnote stated:

          "CONSULT YOUR ADVISORS -- This document has been prepared for approval by your attorney.  No representations or recommendations made by [the broker] as to the legal sufficiency or tax consequences of this document or the transaction to which it relates.  These are questions for your attorney.  In any real estate transaction, it is recommended that you consult with a professional, such a civil engineer, industrial hygienist or other person, with experience in evaluating the condition of the property, including the possible presence of asbestos, hazardous materials and underground storage tanks."

     At the time of considering the above case, the California Superior Court also considered the case of a 3 year lease of commercial property on Sunset Boulevard in the Silver Lake district of Los Angeles which was used as a bar and cabaret.  The lessor sought to impose upon the lessee the cost of a seismic retrofit ordered by municipal authorities.

     The lessor expended $34,450.26 to reconstruct the building's frame and install a new roof.

     The Supreme Court applied the above factors to this situation and determined that it was the lessor, and not the lessee, which was required to assume the burden of the seismic retrofit.

     The Supreme Court noted the differences in the two cases including

          "in the amount of the monthly rent ($28,500 versus $800), the life of the lease (15 years versus 3 years, with a 5 year option), the cost of compliance alterations as a percentage of the aggregate rent (less than 5% versus 49%), prior notice of the potential for compliance problems (written notice [consult your advisors, etc.], none in this case . . . ."

[This column is intended to provide general information only  and
is  not intended to provide specific legal advice; if you have  a
specific  question  regarding the  law,  you  should  contact  an
attorney  of your choice.  Suggestions for topics to be discussed
in this column are welcome.]


Reprinted from Fabricare
Myles M. Mattenson © 2012