People acquire commercial real estate for an assortment of different reasons. Sometimes, small business owners and professionals with their own practice want to accrue equity instead of paying rent. They purchase properties so that they can operate their businesses at those facilities.
For others, commercial real estate might be a long-term investment. They acquire property, slowly improve it and then intend to resell it eventually. Other times, commercial real estate can provide ongoing revenue in the form of rent payments from tenants.
Regardless of whether an owner uses the space for commercial purposes, holds the property as an investment or rents it out to others, they may need to address the possibility of environmental liability. Business operations can contaminate the soil, impact air quality and affect local water sources.
How can commercial real estate owners limit the financial exposure that stems from claims of environmental damage?
With specialized insurance
When a commercial property has older buildings, there may be reason to worry about environmental contamination when using or remodeling those edifices. Landlords may also need to consider how their business operations might also lead to allegations of environmental damage. They can carry environmental liability insurance. These policies help mitigate the expenses associated with allegations of environmental degradation. Insurance can help pay for legal representation in some cases. Other times, policies can cover the cost of contamination remediation services and other expenses associated with claims of environmental damage.
With appropriate leases
In some cases, property owners may end up facing environmental liability claims due to the conduct of their commercial tenants. People who rent space to conduct business at the property may violate state and federal statutes. The landlord may not have had any idea of that misconduct until they faced scrutiny later because of contaminated soil or information that connects water purity or air quality issues to the conduct of a tenant.
Landlords may want to include provisions in their leases prohibiting conduct that violates local, state or federal law at the property. They may also want to include clauses assigning liability for environmental issues related to the use of the property, including any inappropriate modifications to the property. Previously-contained asbestos and lead could end up causing contamination issues if tenants cut corners when renovating an older building. Appropriate lease inclusions can help mitigate liability related to the conduct of tenants.
Those concerned about their commercial real estate portfolio, intended business plans or the conduct of their tenants may need help planning for their own protection. Reviewing the intended use of commercial real estate with a skilled legal team can be the first step toward mitigating environmental liability.
