Why Environmental Laws Matter More Than Real Estate Contract Amendments

by Isaac Benmergui, Esq on March 24, 2014

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Back when a little company called Bitler leased some gas stations to one well-known brand called Marathon in 1983, no one ever thought the Environmental Protection Agency would get involved and stipulate new regulations regarding petroleum. It happened. Nationwide, gas stations everywhere had to make sure they were complying with the new law, stating that “underground petroleum tanks and pipes at the gas stations Marathonhad to be removed, upgraded, or replaced, 40 C.F.R. 280.21(a). This is what Bitler and Marathon did –

They amended their leases to include compliance with those new regulations, stating that Marathon was, in fact, “responsible for removing” those tanks and pipes. Additionally, they had to make sure they filled the holes, which were created by removal. This would successfully complied with the new law. As a proposed addition to the contract lease, Maraton was also supposed to leave the premises “in a condition reasonably useful for future commercial use…. Replacing any asphalt, concrete, or other surface, including landscape.” In turn, Marathon had agreed to keep the location “as nearly as possible in the same condition as it was in prior to such remediation work.” They would also be responsible “for any and all liability, losses, damages, costs and expenses” while continuing to pay rent.

A problem arose. Bitler sued Marathon after the project as mandated by the new contract was completed. Why? Because Marathon had allegedly breached the contract, contributing to “waste,” as Bitler stated, in the establishment. Here’s the slight problem with that – it didn’t matter one bit at all in regard to the compliance of the new environmental law, not to mention absolutely nothing stated anything about liability regarding waste products as a result of the renovation.

In the end, this was about the law. Marathon abided by the law – there were some expenses, but some of the contract claims were dismissed. The Seventh Circuit Court, in fact, vacated the claim of “waste” regarding those Michigan properties while however doubling damages on both parties. This is definitely an example, under real estate law, that contract terms resulting in some form of money compensation to account for losses and/or damages don’t necessarily fall on just one party if it’s directly related to new regulations and laws. All parties must be held accountable.

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