What Property/ Facility Managers With Tenants Must Worry About

Posted by Mark Roman on December 10, 2019

As a property or facility manager, you have to take care of your own operations from an environmental, health and safety standpoint but you also have to keep an eye on what your tenants are doing.

We’re talking about commercial sites like strip malls or office complexes, warehouses, industrial sites, or manufacturing plants where you lease a portion of the property to different tenants, often doing many different types of activities.

You should be concerned about what your tenants are doing, because your tenants’ activities could affect your facility, including property conditions, compliance and permitting sitewide. As a result, you need to make sure you are aware of what your tenants do and how they do what they do, including processes, raw materials (especially if they use hazardous materials) and waste products.

Property managers and landlords have legal obligations to protect tenants from certain environmental hazards at a property. But don’t forget about safeguarding your property from your tenants.

Probably, the most dangerous situation – if not keeping an eye on things – is when a tenant’s lease is up, and they vacate the premises… and leave something behind that impacted the environment. You may have a difficult time in proving that the former tenant is responsible if you did not fully understand what activities that tenant had conducted at the property and what materials were used by them. As a result, the property owner may then become responsible for any environmental action required by regulators.

I don’t think that the property owner would be happy about that situation. This bad situation can get even worse if you are losing income because you can’t get a new tenant in there before any clean-up is completed.

Paying Attention is an Investment that Always Provides a Positive Return

As a property manager, paying attention to what your tenants do is a valuable investment.

We were working for the owner of a property that had an industrial manufacturing operation on site. They ceased operations but retained ownership of the property. We did Phase I and Phase II Environmental Site Assessments on the property for the owner and found some minor impacts - nothing major. We addressed the minor issues and obtained regulatory approval for the closure of these issues through a Voluntary Cleanup Program. This information was shared with anyone interested in leasing the property.

As a result of these efforts, we documented the then-current conditions of the property to establish a picture in time of the conditions of the property prior to leasing it to a tenant.

Then, they leased the property out to a mid-size manufacturer. The lease lasted for about 5 years and before the tenant moved out, the property owner had us conduct a follow-up assessment to determine if property conditions had been affected as a result of the tenant’s operations. Sure enough, we discovered soil impact in areas that were previously assessed and found to be “clean” prior to the tenant’s occupancy of the site.

It turns out that the tenant’s operations impacted the site and resulted in the need to conduct some active remediation at the property. What saved our client is that they had us do that initial investigation to get a picture in time of property conditions – before they leased the property. So the owner had the information that was needed to demonstrate to the tenant that they were responsible to address the issues identified in our follow-up assessment.

Granted, we all do not have the time or the money to conduct environmental assessments of our properties prior to initiating a lease to a new tenant or ending an existing tenant’s lease. However, there are other ways you can help protect yourself from potential issues arising from tenant operations. Your lease agreement is one of the best ways to protect yourself from environmental, health and safety issues resulting from tenant activities. In the lease agreement, you should:

  • require that the tenant disclose details of their operations, processes, and any hazardous materials they use or store on site, and the tenant should review any changes to such operations and materials to be used with you, prior to implementing them;
  • require that the tenant maintain full compliance with all environmental, health and safety rules and regulations on the local, state and federal level while occupying the property and upon exiting the property; and
  • require that the tenant report any regulatory actions that occur at the property

We highly recommend that you utilize legal counsel to prepare all lease agreements. It is also extremely important that your legal counsel has experience with environmental, health and safety rules and regulations so that those issues can be included in any lease agreement in order to protect yourself and the property owner.

You should also conduct periodic inspections of your tenants’ operations to make sure their rental spaces are maintained in an orderly manner, making sure that their process areas and storage areas are clean and well managed. It is important that you document these inspections with a written report and photographs.

Should an environmental, health or safety issue occur at the property due to a tenant’s activity, you should require that you be provided with all documentation and regulatory correspondence relative to that issue. It would also be helpful to be in attendance at any meetings with regulators related to any such issue. This way, you can see firsthand whether or not the tenant is addressing the issue to the satisfaction of the regulators.

As the property/facility manager, you are ultimately responsible for what goes on at your site. And that means making sure you are aware of your tenants’ operations and any materials they use, so you can gauge possible environmental impacts and what they might look like. That will allow you to monitor the situation, keep an eye on potential impacts, and be able to tell regulators you are not at fault if something does happen.

If you’re a facility or property manager, and you suspect a past tenant may have caused an ongoing environmental issue on your property, I’d be happy to discuss the situation with you. Please call me, Mark Roman from Envision Environmental, Inc., at 609-208-1885 or send me an email: markroman@envisionenvironmental.com.

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