Protecting Your Property From Tenant Activities That May Trigger The Transfer Act
July 13, 2016
One of the most common issues we face when representing landlords is the unexpected triggering of the applicability of the Transfer Act, Conn. General Statutes §22a-134, et seq., by a tenant. This typically occurs when the tenant becomes an “Establishment” under the Transfer Act by generating greater than 100 kilograms of hazardous waste in a month. Unfortunately, a landlord and its counsel may not have recognized the potential that a pharmacy or big box tenant may exceed the 100 kilogram generation threshold during its routine practices of managing old, damaged or returned inventory or performing routine maintenance. That tenant may submit a notification of hazardous waste activity to the appropriate environmental agency as required under applicable environmental law indicating that it is either a small or large quantity generator of hazardous waste, both of which identify that tenant as generating more than 100 kilograms of hazardous waste in a month. Worse, a conveyance of that business may result in a Transfer Act filing requiring the investigation of the entire parcel.
Generating this level of hazardous waste is not a statutory violation. For many businesses, generating hazardous waste is simply part of facility operations necessary to produce goods. Note that in addition to becoming an “establishment” by generating greater than 100 kg of hazardous waste in any one month on or after November 19, 1980, a business may become an “establishment” by conducting the process of dry cleaning, furniture stripping or vehicle body repair on or after May 1, 1967. A business may also become an “establishment” by recycling, reclaiming, reusing, storing, handling, treating transporting or disposing of hazardous waste generated at a different location.
Being an “Establishment” is not unlawful. However, the unintended consequences of being so classified could have significant negative consequences for the landlord. First, it may inhibit the ability to sell the property as the conveyance of the property (or the sale of the business) may trigger the Transfer Act. Second, lenders may be less inclined to accept the property as collateral. Third, the investigation/remediation obligations under the Transfer Act may be quite substantial.
As operating as an “Establishment” is not illegal under environmental law, there may not be any recourse against the tenant based on such action….unless a provision is expressly inserted in the lease prohibiting the tenant from triggering Transfer Act applicability. If you are negotiating a commercial lease, stick this prohibition in the lease unless you knowingly are willing to accept the repercussions of Transfer Act applicability in exchange for obtaining a potentially excellent tenant. This is not a matter of good versus bad. It is merely a matter of understanding the business liability risk that may be encountered if this provision is not included in the lease.
To end on an upbeat note, all hope is not lost if the lease does not address this situation, and the parties to a transaction are concerned that tenant activities may have triggered Transfer Act applicability. Go back to the fundamentals of Transfer Act 101. The statute is often triggered by the GENERATION of greater than 100 kilograms of hazardous waste in any month since November 19, 1980. This is a matter of proof. Was the hazardous waste generated in small amounts over time, although disposed of in a quantity that appears to have triggered the Transfer Act? Was the self-declaration of a facility as a small or large quantity generator based on disposal records rather than actual rates of hazardous waste generation? Was it simply a conservative filing made years ago without an appreciation of the significance of the declaration?
The point is that the battle is not lost. Avoid Transfer Act applicability concerns by taking precautions in the lease and having your environmental attorney draft specific Transfer Act provisions. Address existing concerns by digging deep into whether the tenant’s business practices really did turn the site into an “Establishment”.