Daily Development for Monday, August 14, 2000

By: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
randolphp@umkc.edu

LANDLORD/TENANT; CERCLA LIABILITY AS AN "OWNER:"In a case of first = impression, the Second Circuit analyzed the factors under which a lessee might be = held to be an "owner" for liability purposes under CERCLA.

Commander Oil Corp. v. Barlo Equipment Corp., F.3d , 2000 = U.S. App. Lexis 13102 (2nd Cir., June 12, 2000 (2ndCirN.Y.)

Lessee/sublessor leased part of a facility owned by lessor. Three = years later lessor consolidated its leases by making the lessee/sublessor the lessee of the owner's entire facility. The lesse/sublessor continued = to occupy the same portion of the facility as before the lease = consolidation. It subleased the balance of the facility to the same party that had previously leased it directly from the owner/lessor. The = lessee/sublessor made a small profit on the sublease arrangement.

Environmental problems arose on the property that the lessee/sublessor subleased out, and did not occupy. The Court held that the lessee/sublessor could escape contribution for environmental damage because the lessee/sublessor did not have sufficient control over the subleased property to be liable as an "owner" under the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.=A7=A796019675 ("CERCLA").

The Court noted that typical lessees are not liable as owners under CERCLA, although lessees operating businesses at leased properties may be liable as operators. However, a lessee holding "the proverbial 99 year lease" would be a de facto owner and thus strictly liable. The considerations that the Court listed as important in this analysis are = as follows:

"(1) whether the lease is for an extensive term and admits of no rights in the owner/lessor to determine how the property is used; (2) whether the lease cannot be terminated by the owner before it expires by its terms; (3) whether the lessee has the right to sublet all or some of the property without notifying the owner; (4) whether the lessee is responsible for payment of all taxes, assessments, insurance, and operation and maintenance costs; and (5) whether the lessee is responsible for making all structural and other repairs."

The critical relationship to be examined, according to the Court, is = the relationship between the owner/lessor and the lessee/sublessor in determining the extent of control the lessee/sublessor exercises over = the premises.

The specific factors considered by the Court in reaching its holding = that the lessee/sublessor in this case did not possess sufficient attributes = of ownership to be liable for contribution included the following: (1) = the lease with the owner limited the lessee's use of the entire property to only that portion of the property previously leased. The contaminated portion of the property was not occupied by the lessee/sublessor before or after the consolidation of the leases; (2) the lease required = written consent from the owner for making additions, alterations or improvements on the land, and the alterations would become the owner's property; (3) the lease included a requirement to obtain written = approval from the owner to sublet the property and a prohibition against = subletting for any business that conflicted with the owner's business; (4) the = lease contained a requirement to obtain written permission from the owner for displaying any signs or notices; (5) the lease contained a requirement = to keep the property clean to the standards of the owner and to repair any damage to the systems or equipment of the improvements; and (6) the lease prohibited the lessee/sublessor from engaging in any activity = that would increase the rate of fire insurance and a prohibition from = bringing any inflammable, combustible or explosive fluid, chemical or substance onto the property.

The retained rights of the owner/lessor which the Court considered important in holding that the lessee/sublessor was not an owner under CERCLA included the following: (1) the right to enter onto the = property for various purposes; (2) the owner reserved to itself use of three of = the oil storage tanks on the contaminated property; (3) the owner reserved = an option to use certain office space on the property leased by lessee/sublessor; (4) the owner reserved the right to maintain its equipment on the roof of the building; and (5) the owner assumed the responsibility to make structural repairs.

Comment: Obviously a very useful case for study. But the factors are sufficiently complex that it is difficult to identify a true "safe = harbor." Regulations are appropriate here.

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1‑6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

Items reported here and in the ABA publications are for general information purposes only and should not be relied upon in the course of representation or in the forming of decisions in legal matters. The same is true of all commentary provided by contributors to the DIRT list. Accuracy of data and opinions expressed are the sole responsibility of the DIRT editor and are in no sense the publication of the ABA.

Parties posting messages to DIRT are posting to a source that is readily accessible by members of the general public, and should take that fact into account in evaluating confidentiality issues.

ABOUT DIRT:

DIRT is an Internet discussion group for serious real estate professionals. Message volume varies, but commonly runs 5 ‑ 10 messages per workday.

Daily Developments are posted every workday.

To subscribe to Dirt, send an e-mail to:

To:	ListServ@listserv.umkc.edu
Subject:	[Does not matter]
Text in body of message	Subscribe Dirt [your name]

To cancel your subscription to Dirt, send an e-mail to:

To:	ListServ@listserv.umkc.edu
Subject:	[Does not matter]
Text in body of message	Signoff Dirt

For information on other commands, send the message Help to the listserv address.

DIRT has an alternate, more extensive coverage that includes not only commercial and general real estate matters but also focuses specifically upon residential real estate matters. Because real estate brokers generally find this service more valuable, it is named “Brokerdirt.” But residential specialist attorneys, title insurers, lenders and others interested in the residential market will want to subscribe to this alternative list. If you subscribe to Brokerdirt, it is not necessary also to subscribe to DIRT, as Brokerdirt carries all DIRT traffic in addition to the residential discussions.

To subscribe to Brokerdirt, send an e-mail to:

To:	ListServ@listserv.umkc.edu
Subject:	[Does not matter]
Text in body of message	Subscribe Brokerdirt [your name]

To cancel your subscription to Brokerdirt, send an e-mail to:

To:	ListServ@listserv.umkc.edu
Subject:	[Does not matter]
Text in body of message	Signoff Brokerdirt

DIRT is a service of the American Bar Association Section on Real Property, Probate & Trust Law and the University of Missouri, Kansas City, School of Law. Daily Developments are copyrighted by Patrick A. Randolph, Jr., Professor of Law, UMKC School of Law, but Professor Randolph grants permission for copying or distribution of Daily Developments for educational purposes, including professional continuing education, provided that no charge is imposed for such distribution and that appropriate credit is given to Professor Randolph, DIRT, and its sponsors.

DIRT has a WebPage at: http://www.umkc.edu/dirt/