Successful lease negotiations are based in a comprehensive understanding of the terms and provisions, what’s important about each, and how they impact a particular client (tenant). While every commercial lease is different, there are some provisions that are in every commercial lease. The Hazardous Materials section is a prime example. Language may vary, but there are common points/themes that are important to consider and negotiate:
Whenever a lease term is capitalized it’s because it has a specific description or definition within the lease. For example, “default” and “Default (or Event of Default)” do not mean the same thing because lower case “default” includes notice and cure periods while capital “Default” defines a violation that is beyond such notice and cure periods. Hazardous Materials is similar in that it is defined by specific federal laws that are the same in nearly every lease. “Hazardous Materials” are defined as a “hazardous substance”, “hazardous material”, hazardous waste”, “regulated substance” or “toxic substance” under:
- Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. §9601, et seq.
- Hazardous Materials Transportation Act, 49 U.S.C. §1801, et seq.
- Resource Conservation and Recovery Act of 1976, 42 U.S.C. §6901 et seq.
- Clean Water Act, 33 U.S.C. §1251, et seq.
- Safe Drinking Water Act, 14 U.S.C. §300f, et seq.
- Toxic Substances Control Act, 15 U.S.C. §2601, et seq.
- Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. §136 et seq.
- Atomic Energy Act of 1954, 42 U.S.C. §2014 et seq.
- and any similar federal, state or local Laws, and all regulations, guidelines, directives and other requirements
Examples of exceptions are for cleaning and/or office products or limitations on quantity, but this is not really necessary as the materials that would trigger a default under this section are clearly defined and legal/proper use and disposal is always a requirement.
The relevance/importance of the Hazardous Materials sections is directly impacted by the property type and use of the space. Tenants leasing industrial space are more likely to be impacted by the section based on their own use, that of neighboring tenants, and/or previous tenants. Office users generally have the least to worry about based on the nature of their use: “general office.” Tenants must understand if their business requires the use of any Hazardous Materials. If so, this should be disclosed to the landlord prior to leasing, but most importantly the tenant must use, store, and dispose of such Hazardous Materials according to applicable laws.
Landlords may require the right to inspect the tenant’s space to check for the presence of any Hazardous Materials violations. Such rights should be based on a reasonable standard/just cause and, while landlords would not typically expend the resources to frivolously inspect the premises, the cost should be born by the landlord unless any violations are discovered. Tenants will always be responsible for remediating any contamination (that is the fault of the tenant).
Depending on the property type, tenants may want to inspect the property for the existence of Hazardous Materials. This is particularly and primarily important with land (office not so much). It’s good to have the landlord indemnify the tenant against the existence of any Hazardous Materials present prior to the tenant’s occupancy, but better to have them covenant that there are no Hazardous Materials prior to the tenant’s occupancy. The first requires the tenant to prove that the Hazardous Materials were there before they occupied and not the result of their occupancy while the latter puts the burden of proof on the landlord.
Hazardous Materials wouldn’t exist if they weren’t used in one capacity or another. This universal lease provision is mostly a “cover your butt” for the landlord. In most cases they’re never used; making it a relatively irrelevant section in most leases. When it does apply the tenant simply needs to use, store, and dispose of the Hazardous Materials according to applicable law and pay to remediate any violations, spills, etc.