Newly issued guidance by the U.S. Environmental Protection Agency (USEPA) suggests that prudent long-term tenants of commercial and industrial properties should conduct environmental due diligence before entering into a lease, and that lenders who are looking to a tenant’s interest in a lease as security for a loan should ensure that the loan documents require the borrower-tenant to provide all legally required notices, cooperate with environmental authorities, and take reasonable steps with respect to hazardous substance releases.

The liability of “innocent” tenants under environmental laws is limited, but real. The Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601 et seq. (CERCLA), imposes liability on “owners” and “operators,” categories which typically do not include a tenant that had no role in causing a contamination problem. However, a tenant may become liable for historical environmental problems either by controlling the property to such an extent that it is deemed a “de facto owner,” or by exercising a level of control over the remediation of the hazardous substances at issue to such a great extent that the tenant becomes an “operator” under CERCLA, and, by extension, California law.

Please see full alert below for more information.