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Landlord liability for asbestos removal.

In the recent New York Supreme Court decision of Rapid-American Corp. vs. 888 7th Avenue Associates Limited Partnership (N.Y. Sup. Ct., 1A Part 14, June, 1991) (printed in N.Y.L.J., June 27, 1991), the trial judge ruled that the landlord of a major Manhattan office building was obligated to reimburse its tenant for asbestos removal costs (alleged by the tenant to be nearly $3 million) incurred in connection with the tenant's renovation of its space for subtenants.

The RapidAmerican case required the court to construe the provisions of a lease agreement which was entered into roughly 15 years prior to the 1985 enactment of New York City Local Law No. 76, which law requires that asbestos be removed or encapsulated if any alternation or demolition is performed which will cause asbestos to become airborne. The lease contained typical office lease provisions which require (a) the tenant to comply with all applicable laws and requirements in connection with its use and occupancy of the leased premises or any tenant alteration, (b) the tenant to make all repairs to the leased premises at the tenant's sole cost and expense and (c) the tenant to abate any nuisance arising from any cause or condition created by or at the instance of the tenant.

At first blush, it appears that the afore-mentioned lease provisions, which favor the landlord, would result in the imposition of asbestos removal costs on the tenant. However, the Rapd-American court pointed out that under both New York City law and the lease the landlord is required to keep its building in good, safe condition and in compliance with all laws. Indeed, the Administrative code of the City of New York $S 27-128 provides that the "owner shall be responsible at all times for the safe maintenance of the building and its facilities." The Rapid-American court was not convinced that any of the other lease provisions shif-ted the responsibility for asbestos removal, which is clearly a safety issue, from the landlord to the tenant.

In rendering its decision, the RaPid-American court first relied on the earlier decision of Wolf vs. 2539 Realty Associates, 161 A.D.2d 11, 560 N.Y.S.2d 24 (1st Dept. N.Y. App. Div. 1990), which ruled that the abatement of an asbestos condition does not constitute a "repair" since repair work "does not entail the assumption of any responsibility for an inherent characteristic of a material employed in the original construction of the premises by the owner or his agents in compliance with the then-existing laws and regulations." Rapid-American (quoting Wolf, 161 A.D.2d at 16).

Secondly, the Rapid-American court ruled that, although the lease required the tenant's use of the premises to comply with all governmental laws and requirements, the tenant's particular use imposed no such duty on the tenant to pay for asbestos removal. The court stated that "governmental compliance clause related to the use of the premises "is designed to protect a landlord against the assumption of any additional burden which might be imposed by the necessity to comply with laws and regulations governing the tenant's particular use of the premises" (quoting Wolf, 161 A.D.2d at 16). Tenants have been required to make even structural alterations to comply with laws when compliance is necessitated by the "character" of the tenant's occupancy (citation omitted). Here, however, the demised premises are being used to sublet office space, the very use contemplated by the lease. (The tenant) is not occupying or using the premises for any special purpose. Since the inception of the lease, [the tenant has] been subletting and renovating the space [and] has not changed its use of the premises (citations omitted). Thus, the duty is imposed by a change in governmental policy, not because of any particular use of the premises; there is no new use running afoul of existing law (citations omitted).

The condition was created by the use of asbestos containing material as fireproofing, not by [the tenant's] use of the premises. Whilethere is evidence that the material does not present an immediate hazard unless renovations occur (citations omitted), the issue is not whether the premises are "safe" in the absence of renovations, but whether the building is in a "safe condition" so that Rapid can use the demised premises in the manner contemplated by the lease (citation omitted)."

Finally, the court further supported its decision by pointing out that, even though the lease is a long-term lease, it is the landlord "who will reap the ultimate benefits of the (asbestos removal) work" since the value of the building will increase as a result of such work.

It is important to note that the Rapid-American case, which imposes on landlords the cost of asbestos removal incurred by tenants in connection with subtenant renovations, would apply with equal effect to alterations by a tenant for its own use.

It is not clear whether the Rapid-American decision would have been different if the lease contained stronger pro-landlord language such as a provision specifically stating that tenant must comply with all present and future laws and governmental requirements, including, without limitation, those dealing with asbestos and other hazardous materials, whether imposed by federal, state or local authorities. The Rapid-American court could have construed such additional pro-landlord provision, as it did the other provisions of the lease, as only imposing the asbestos removal obligation on a tenant should a tenant's particular use of the premises be a type of use not specifically contemplated by the terms of the lease, and that as long as the tenant is complying with the permitted use provisions of the lease, the landlord will be required to pay for asbestos removal as a corollary to its obligation (under its lease and the New York City Code) to maintain and keep the building in good, safe condition and in compliance with all laws.
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Title Annotation:Property Management Supplement
Author:Casareale, Anthony
Publication:Real Estate Weekly
Date:Oct 2, 1991
Words:980
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