Asbestos Removal, And Seismic Retrofits!
Have You Read Your Lease Lately?

      The California Supreme Court was recently presented with  a
dispute  which  arose  between  the  lessors  and  lessees  of  a
commercial  building  as to who was responsible  for  government-
ordered abatement of asbestos contamination on the premises.

      The  case  involved a long term lease of  a  warehouse-type
building on Venice Boulevard in Los Angeles which was leased to a
West  Los  Angeles  Cadillac dealership.   The  lessees,  in  the
phraseology of the California Supreme Court, "did agree to a duty
of  repair that is, on its face, virtually global in scope."  The
Court  concluded  that "the parties intended to transfer  to  the
lessees  substantially  all of the responsibilities  of  property
ownership,  including the duty to comply with the  county-ordered
asbestos cleanup."

      The lease provided for a term of 15 years and included  the
following provisions:

                "Lessee  shall,  at  lessee's  expense,
          comply promptly with all applicable statutes,
          ordinances,   rules,   regulations,   orders,
          covenants  and  restrictions of  record,  and
          requirements in effect during the term or any
          part  of the term hereof, regulating the  use
          by the lessee of the premises . . . .

                 Lessee  shall  keep  in  good   order,
          condition  and repair the Premises and  every
          part thereof, structural and non-structural .
          .  .  .  Except for the obligations of lessor
          [in the event of building destruction], it is
          intended  by  the parties hereto that  lessor
          have  no obligation in any manner whatsoever,
          to repair and maintain the Premises . . . all
          of  which obligations are intended to be that
          of the Lessee . . . ."

The environmental cleanup was estimated by the plaintiffs' expert
at $251,856.  In determining who should bear the burden of such a
cost, the Supreme Court noted that courts usually apply a certain
handful of factors in determining whether the lessee assumed  the
burden  of  such  an expense.  The court noted six  factors,  and
commented on those factors, as follows:

(1)  The relationship of the cost of the curative action  to
     the rent reserved.

      Although  $251,856 is obviously substantial, the  cost  was
less than 5% of the total rent reserved over the 15 year life  of
the lease which involved monthly rental of $28,500.

(2)  The term for which the lease was made.

     The court concluded that a lease for a term of 15 years is a
comparatively lengthy lease.

(3)  The  relationship of the benefits to the lessee to that
     of the lessor.

     In this case, since the hazardous material was discovered in
the  third  year  of  the lease term, the  cleanup  would  be  of
substantial benefit to the lessees; however, the court  concluded
that  the benefit of the required work would obviously serve  the
interests of both parties.

(4)  Whether  the  curative  action is  structural  or  non-
     structural in nature.

     Since this particular lease expressly absolved the lessor of
any  responsibility for repairs, whether or not  structural,  the
court determined that the language of the lease was "sufficiently
definite  and  clear  to  negate the argument  that  'structural'
alterations are not within the lessees' obligations."

(5)  The  degree  to  which  the lessees  enjoyment  of  the
     premises  will  be interfered with while  the  curative
     action is being undertaken.

      The court noted that "it appears that the lessees were able
to  'work  around' the flaking debris through the  expediency  of
moving  the  retail sales operation into the former storage  area
and storing inventory in the area subject to denomination."

(6)  The   likelihood  that  the  parties  contemplated  the
     application of the particular law or order involved.

      These lessees had "substantial experience in retail leasing
and  conceded that they had read and understood the notice at the
foot  of  the  lease  proposal  and  elected  not  to  pursue  an
investigation of that contingency."  The footnote stated:

                "CONSULT YOUR ADVISORS -- This document
          has   been  prepared  for  approval  by  your
          attorney.      No     representations      or
          recommendations made by [the  broker]  as  to
          the legal sufficiency or tax consequences  of
          this document or the transaction to which  it
          relates.    These  are  questions  for   your
          attorney.  In any real estate transaction, it
          is  recommended  that  you  consult  with   a
          professional,   such   a   civil    engineer,
          industrial  hygienist or other  person,  with
          experience in evaluating the condition of the
          property, including the possible presence  of
          asbestos, hazardous materials and underground
          storage tanks."

      At  the  time of considering the above case, the California
Superior  Court  also considered the case of a 3  year  lease  of
commercial  property  on  Sunset Boulevard  in  the  Silver  Lake
district of Los Angeles which was used as a bar and cabaret.  The
lessor  sought to impose upon the lessee the cost  of  a  seismic
retrofit ordered by municipal authorities.

     The lessor expended $34,450.26 to reconstruct the building's
frame and install a new roof.

      The  Supreme  Court  applied  the  above  factors  to  this
situation  and  determined that it was the lessor,  and  not  the
lessee,  which was required to assume the burden of  the  seismic
retrofit.

      The  Supreme Court noted the differences in the  two  cases
including

                "in  the  amount  of the  monthly  rent
          ($28,500 versus $800), the life of the  lease
          (15  years  versus 3 years,  with  a  5  year
          option),  the cost of compliance  alterations
          as  a  percentage of the aggregate rent (less
          than  5%  versus 49%), prior  notice  of  the
          potential  for  compliance problems  (written
          notice [consult your advisors, etc.], none in
          this case . . . ."

     Have you read your lease lately?

[This column is intended to provide general information only  and
is  not intended to provide specific legal advice; if you have  a
specific  question  regarding the  law,  you  should  contact  an
attorney  of your choice.  Suggestions for topics to be discussed
in this column are welcome.]


Reprinted from New Era Magazine
Myles M. Mattenson © 1996-2002