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