What You Need to Know About the Recent Amendments to BC’s Contaminated Sites Regime

The following article was provided courtesy of Gowling WLG and discusses important changes in disclosure under the BC Environmental Act for certain types of property together with additional reporting requirements to the BC government. Please contact any one of the authors for additional information about these changes.

By Wally Braul, Maya Stano, Mark Youden and Lee Hawkings, Gowling WLG Canada International Law Firm & Legal Firm | Business Solicitors & Lawyers | Gowling WLG

On February 1, 2021, a number of amendments to BC’s Environmental Management Act (the “EMA”) and the associated Contaminated Sites Regulation (the “CSR) came into effect (the “Amendments”). The Amendments include new requirements on owners and operators of properties used for industrial and commercial purposes, and a shift from the long-standing “Site Profile” system to a more onerous “Site Disclosure Statement” system.

At a high level, the most significant departures from the previous regime are:

  1. categories of industrial and commercial lands subject to the amended regime are now set out in a schedule, with the potential for more categories to be added in the future; and
  2. when certain events occur – such as ceasing operations and decommissioning – owners and operators of ‘specified industrial or commercial use’ properties must prepare a Site Disclosure Statement (“SDS”) and hire an environmental consultant to conduct a preliminary site investigation (“PSI”) and submit both the SDS and the PSI results to the Ministry of Environment.

Below we describe the key changes in greater detail (Part A), and offer some hypothetical scenarios to demonstrate how these may impact commercial and industrial real estate transactions in BC (Part B).

A. Four Primary Changes  

1. Mandatory Site Disclosure Statements

First, the amended EMA requires regulated persons to provide a SDS. The new SDS system applies to a wide range of sites that are (or may be) contaminated.  It also introduces a new defined term: ‘specified industrial or commercial use’, that refers to activities listed in Schedule 2 of the CSR that are now subject to the new SDS requirements.

Section 40 of the EMA now requires owners and operators of lands that have been used for ‘specified industrial or commercial uses’ to provide an SDS to applicable regulators and municipalities when:

  • seeking subdivision, rezoning, or building permit approvals;
  • decommissioning or ceasing operations; and
  • seeking creditor protection or filing for bankruptcy.

The amended EMA also requires vendors of properties used for these ‘specified industrial or commercial uses’ to provide an SDS to the purchaser.

The amended CSR in turn provides a number of industry and circumstance-specific exemptions from these broad categories, including where a site is already subject to a regulatory instrument or other processes under the EMA.

2. Mandatory Preliminary Site Investigations

The second notable change (and perhaps the most consequential) requires many persons who are obligated to provide an SDS to also conduct a PSI (the requirements of which are prescribed in the CSR) and provide the results of the PSI to a director of the Ministry of Environment (s. 40.1 of the EMA). An important exception here is for vendors of real property that do not otherwise meet the requirements for “decommissioning” or “ceasing operations”. Such vendors selling a property ‘as is’ are only required to provide an SDS to the purchaser.

This new ‘mandatory investigation’ provision is in addition to the existing authority of a director to order owners or operators to undertake site investigations (as set out in s. 41 of the EMA).

3. The Administrative Penalties Regulation Amendments

The third notable change is with respect to penalties, with the Administrative Penalties (Environmental Management Act) Regulation being amended to provide an administrative enforcement regime to support the new SDS system. The potential maximum penalties are:

  • $75,000 per day for contraventions of certain EMA provisions; and
  • $40,000 per day for contraventions of certain CSR provisions.

These administrative penalties can be enforced against parties who fail to provide an SDS or fail to fulfill the automatic site investigation requirements.

4. Local Government Act and Vancouver Charter Amendments

Finally, the Local Government Act (“LGA) and Vancouver Charter have also been updated to incorporate the new EMA and CSR provisions. This update continues the Ministry of Environment oversight of specified municipal approvals related to potentially contaminated sites, which is commonly referred to as a “freeze and release”.

Under this system, municipalities must not approve specified zoning or permitting applications until they have received one of several “notices” from the Ministry of Environment granting permission. Under the previous regime, the Ministry of Environment made such determinations based solely on the Site Profile and whatever other public data was available. As a result of the recent Amendments, the Ministry of Environment will now be able to rely on an SDS and the results of the PSI undertaken by the applicant when issuing such notices.

B. Hypothetical Transaction Scenarios  

The following scenarios illustrate how the Amendments create new considerations for real estate transactions involving lands used for a ‘specified industrial or commercial use’.

  1. Selling ‘Specified Industrial and Commercial Use’ property ‘as is’
  • The only regulatory requirement on vendors selling the ‘specified industrial and commercial use’ property ‘as is’ is to provide an SDS to a prospective purchaser.
  • Further site investigations may, however, be voluntarily conducted by the owner, and the results provided to the purchaser in order to accommodate the deal.
  1. Selling ‘Specified Industrial and Commercial Use’ property after ceasing operations
  • For business reasons, an owner may choose to shut down operations at the ‘specified industrial and commercial use’ property well in advance of the sale. Depending on the extent to which industrial operations have ceased and how long operations are ceased for, this owner may be required by the EMA and CSR to:
    • provide an SDS to the registrar of the Ministry of Environment;
    • provide the results of a PSI to a director of the Ministry of Environment; and
    • provide an SDS to the purchaser.
  1. Selling ‘Specified Industrial and Commercial Use’ property after decommissioning
  • To accommodate a deal, an owner may agree to decommission and remediate parts of the ‘specified industrial and commercial use’ property prior to sale. Depending on the extent to which the site has been decommissioned, this owner may be required by the EMA and CSR to:
    • provide an SDS to the registrar of the Ministry of Environment;
    • provide the results of a PSI to a director of the Ministry of Environment; and
    • provide an SDS to the purchaser.
  1. Seeking to rezone or redevelop ‘Specified Industrial and Commercial Use’ property before sale
  • To attract purchasers, an owner may seek municipal approval to rezone or redevelop the ‘specified industrial and commercial use’ property to a more valuable land-use prior to sale. Depending on the intended use of the property (and corresponding municipal approval that will be required), such owner may be required under the EMA and CSR to:
    • provide an SDS to the applicable municipality;
    • provide the results of a PSI to a director of the Ministry of Environment;
    • seek a “notice” from a director of the Ministry of Environment (such notice allows the municipality to approve the application); and
    • provide an SDS to the purchaser.
  • Further, under the updated provisions of the LGA and the Vancouver Charter, the applicable municipality would:
    • assess the SDS;
    • forward the SDS to the registrar of the Ministry of Environment;
    • ‘freeze’ the zoning application until it has received a “notice” from the Ministry of Environment; and
    • if a “notice” is received, ‘release’ the zoning application and proceed with making a decision whether to approve or deny.

ASTM Proposes Changes to Phase I ESA Standard (E1527)

The following article discusses proposed changes to the Phase 1 Environmental Site Assessment [ESA] process. It was provided to us by the original author, whose contact information is after the article.

Although the lawyer-author is based in the USA and references the EPA in the USA, the ASTM standard for Phase 1 ESA is used in Canada as well. The major difference you should be aware of however, is that Canada and the USA, and its various states, have different items considered to be Hazardous Material. Therefore, your ESA consultant should be aware of the differences, between the countries or between the various states; particularly as they apply to a site under investigation, and so-called ‘non-scope considerations’.

Highlights

  • ASTM International’s E1527-13 Standard Practice on Phase I Environmental Site Assessments (ESAs) is required to be revised, reapproved as is or abandoned this year.
  • The ASTM E50.02 Task Group has been reviewing the existing standard, and many of group’s proposed changes are intended to correct what are viewed as deficiencies in implementation of the current standard. Other changes are offered to provide greater consistency in the language of the standard.
  • The current draft is out for ballot with results due on July 10, 2021. All users (and their counsel) are encouraged to actively participate in these discussions.

Every eight years, ASTM International’s standard-setting committees are required to evaluate existing ASTM standards. The ASTM E1527-13 Standard Practice on Phase I Environmental Site Assessments (ESAs) is required to be revised, reapproved as is or abandoned this year. The ASTM E50.02 Task Group has been diligently reviewing the existing standard for more than a year, and has been developing a series of proposed changes to the standard. Many of the proposed changes are intended to correct what are viewed as deficiencies in implementation of the current standard. Other changes are offered to provide greater consistency in the language of the standard. Several of the proposed changes are very nuanced. Not all of the proposed changes are uniformly supported. This Holland & Knight alert highlights what are believed to be some of the key proposed changes. The current draft is out for ballot with results due on July 10, 2021. It behooves everyone who relies on Phase I ESAs to actively engage in this updating process. The voices of the development and legal communities are currently sorely underrepresented in these discussions.

Nuanced Changes to the Definition of REC

Anyone who reads dozens of Phase I ESAs each year knows that, historically, one could give the same fact pattern to three different Environmental Professionals (EPs) and get three completely different opinions about whether there were Recognized Environmental Conditions (RECs) on the property, and why. In order to try to reduce the amount of variability in REC opinions, the E50.02 Committee is proposing a nuanced change to the REC definition in order to obtain more consistent interpretations. The new definition would read as follows:

The term recognized environmental condition means (1) the presence of hazardous substances or petroleum products in, on, or at the subject property due to a release to the environment; (2) the likely presence of hazardous substances or petroleum products in, on, or at the subject property due to a release or likely release to the environment; or (3) the presence of hazardous substances or petroleum products in, on, or at the subject property under conditions that pose a material threat of a future release to the environment. A de minimis conditions is not a recognized environmental condition.

This revised definition is supplemented with examples in Appendix X4 that are intended to clarify what each of these three phrases in the definition means. For example, under the first part of the definition, the presence of hazardous substances or petroleum products in, on, or at the subject property due to a release or likely release to the environment, an EP could not conclude that an off-site property was a REC. Under the second part of the definition, the likely presence of hazardous substances or petroleum products in, on, or at the subject property due to a release or likely release to the environment, an EP could conclude, based upon his or her experience and observations, that the subject property’s use as a gas station or dry cleaner for a significant period of time prior to regulatory controls, or the presence of a bare-steel underground petroleum storage tank installed at the subject property decades ago without any leak detection systems, may be examples of a REC due to the likely presence of a release of hazardous substances or petroleum products to the environment. Finally, Appendix X4 provides examples of what constitutes a material threat of a future release under the third part of the definition, including precariously stacked drums and bulging tanks. Appendix X4 explains that the past closure of a leaking underground storage tank, for example, may not constitute an Historical Recognized Environmental Condition (HREC) unless the EP has evaluated the data associated with that closed tank to be sure that the sampling data meets current regulatory standards for unrestricted use and whether there is an open vapor exposure pathway. Appendix X4 also provides examples of RECs, HRECs and Controlled Recognized Environmental Conditions (CRECs) in order to try to achieve greater consistency in the use of these terms in the future.

These written examples are supplemented further by a REC, HREC and CREC diagram in Appendix X4. All of this supplemental information should facilitate more informed discussions between users and EPs to be sure that they are using the terminology of E1527 as intended and reaching consistent conclusions whether a given fact pattern constitutes a REC, HREC or CREC.

Recognition via a Footnote that Emerging Contaminants Are Currently an Issue in Many States and Perhaps Should Be Addressed in the Phase I ESA (as a Non-Scope Consideration)

If someone is commissioning a Phase I ESA in a state where emerging contaminants, such as per- and polyfluoroalkyl substances (PFAS), are an issue, the EP will not be identifying these contaminants under the changes proposed to E1527. This is because the U.S. Environmental Protection Agency (EPA) has not yet designated any of the PFAS compounds to be a hazardous substance under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). ASTM continues to consider these compounds to be “non-scope.” So users in the growing number of states that are regulating PFAS under one or more of their regulatory programs should be alert to adding PFAS as a non-scope item (13.1.5.15) to their consultant’s scope of work.

ASTM addressed this issue indirectly via a footnote in Section 1.1.4 of the standard, by reminding users and EPs that there may be other state requirements, including those which may define emerging contaminants as hazardous substances:

If a Phase I Environmental Site Assessment is being conducted to satisfy state requirements and to qualify for the state (or other jurisdiction) equivalent of LLPs, users and environmental professionals are cautioned and encouraged to consider any differing jurisdictional requirements and definitions while performing the Phase I Environmental Site Assessment. Substances that are outside the scope of this practice (for example, emerging contaminants that are not hazardous substances under CERCLA), may be regulated under state law and may be federally regulated in the future. Although the presence or any release/threatened release of these substances are “non-scope considerations” under this practice, the user may nonetheless decide to include such substances in the defined scope of work for which the environmental professional conducting the Phase I Environmental Site Assessment is engaged. See Section 13.1.2 [sic].

Controversy Over the CREC Definition

There remains a vigorous debate about the CREC definition in the standard and its inclusion of the phrase “property use limitation” (PUL).

3.2.17 controlled recognized environmental condition—a recognized environmental condition affecting the subject property that has been addressed to the satisfaction of the applicable regulatory authority or authorities with hazardous substances or petroleum products allowed to remain in place subject to implementation of controls (e.g., property use limitations or activity and use limitations). For examples of controlled recognized environmental conditions, see Appendix X4.3.2.17.1. Discussion— …

(2) In determining whether a recognized environmental condition is “subject to implementation of controls (e.g., property use limitations or activity and use limitations),” the environmental professional shall identify the documentation providing the property use limitation or activity and use limitation that addresses the recognized environmental condition in the report’s Findings and Opinions section(s).

(3) When the environmental professional determines that a recognized environmental condition is “subject to implementation of controls (e.g., property use limitations or activity and use limitations),” this determination does not imply that the environmental professional has evaluated or confirmed the adequacy, implementation, or continued effectiveness of the property use limitation or activity and use limitation.

Those who oppose the current CREC definition see no need for the phrase PUL to be included in the standard. Users are reminded that there has been a long-accepted definition of Activity and Use Limitations (AULs) for more than 20 years – ASTM E2091, Standard Guide on Activity and Use Limitations, Including Institutional and Engineering Controls. AULs are described in detail in Section 6 of ASTM E2091; they include proprietary controls, state and local government controls, statutory enforcement tools and informational devices. See, e.g., 6.6.1 of E2091. The AUL terminology is consistent with the 2002 Brownfields Amendments statutory language and EPA’s 2019 Common Elements Guide, both of which require a purchaser to be in compliance with land use restrictions and not to impede the integrity or effectiveness of institutional controls in order to maintain its Landowner Liability Protections (LLPs). Neither the 2002 Brownfields Amendments nor the Common Elements Guide ever uses the term PUL. Developers are looking for bright-line tests, which the well-established term AULs provides. There is no need for the ambiguous term PUL to be used in the E1527 standard. The opponents are asking for this ambiguous phrase to be deleted throughout the standard.

When pressed to provide a definition of PUL, the E1527 Task Group came up with a tautology – simply repeating the words without offering any other meaning. PUL is not an accepted term of art in the industry. Instead, the Task Group now attempts to define the phrase through examples in Appendix X4 (examples 8, 9 and 10). But Examples 9 and 10 appear to be examples of sites that have met a risk-based cleanup standard, without any clear description of what constitutes the “control.” More than 20 years ago, ASTM rejected the concept that achieving a risk-based cleanup standard was, by itself, any type of control. That is why ASTM instructed one of its Task Groups to develop the E2091 standard on AULs, to supplement the E2081 standard on risk-based corrective action.

Concern Over Scope of Historical Resources to Be Reviewed on Adjoining Properties

The E1527 Task Group made significant changes in Section 8.3 regarding the scope of review of historical records. This section has been reorganized to emphasize that the standard historical information sources include aerial photographs, fire insurance maps, local street directories, topographic maps, building department records, interviews, property tax files, zoning/land use records and other historical resources. When evaluating the uses of adjoining properties (Section 8.3.9), the standard now emphasizes reviewing the “top four” sources of historical information (aerial photographs, fire insurance maps, local street directories and topographic maps) for those properties as well, at least if the “top four” sources were obtained for the subject site and included the adjoining properties. Several EPs have expressed concern that the proposed changes will result in a significant expansion of the scope of review for adjoining properties, as the existing E1527 language simply states that this historical information “should” be reviewed for those properties.

8.3.9 Uses of the Adjoining Properties—During research of the subject property, as described in 8.3.8, uses of the adjoining properties that are obvious shall be identified to evaluate the likelihood that past uses of the adjoining properties have led to recognized environmental conditions in connection with the subject property. This task requires reviewing the following standard historical resources if they have been researched for the subject property (see 8.3.8), provide coverage of one or more adjoining properties, and are likely to be useful in satisfying the objective in 8.3.1:

  1. aerial photographs (see 8.3.4.1),
  2. fire insurance maps (see 8.3.4.2),

iii. local street directories (see 8.3.4.3), and

  1. historical topographic maps (see 8.3.4.4).

In cases where any of the preceding four standard historical resources are not reviewed for the adjoining properties but they were reviewed for the subject property, the environmental professional shall indicate in the report why such a review was not conducted. Additional standard historical resources should be reviewed if, in the opinion of the environmental professional, such additional review is warranted to achieve the objective in 8.3.1. Factors to consider in making this determination include, but are not limited to: the extent to which information is reasonably ascertainable; likely to be useful; the time and cost involved in reviewing such resources (for example, reviewing property tax files for adjoining properties may be too time-consuming); and local good commercial and customary practice. Other historical resources may be used to satisfy the objective of 8.3.1, but are not required to comply with this practice. The report shall describe identified uses at the adjoining properties, indicate the earliest dates identified for the first developed use of the adjoining properties (for example, records showed no development of the adjoining properties prior to the specific date), and identify significant data gaps. The term “developed use” includes agricultural uses and placement of fill dirt, and other uses that may not involve structures.

Clarification That the 180-Day or One-Year Shelf Life of the Report Begins to Run from the Date of the First Task Conducted, and That Those Dates Must Be Listed in the Report

Section 4.6.1 of the standard describes how long the Phase I report will be presumed to be viable. It will be presumed to be viable if the report was completed no more than 180 days prior to the date of acquisition, or up to one year if certain components of the report have been updated: the interviews, review of government records, visual inspection of the property and EP Declaration. The E1527 Task Group intends to clarify in the next update of the E1527 standard that this update clock begins to run from the first of these activities, and that the date each component (interview, environmental lien search, review of governmental records, visual inspection and EP Declaration) must be identified in the report. If the EP conducts the environmental lien/AUL search, the date of that report should also be listed in the Phase I ESA.

Clarification That AUL/Environmental Lien Title Reports Must Search Land Records Back to 1980.

The user is responsible under Section 6.2 of the standard for providing land title records that describe any environmental liens or AULs. The revisions to the standard explain that this is typically done in one of two ways: through a Preliminary Title Report/Title Commitment, or through a Condition of Title Report/AUL-Environmental Lien Title Report.

An important issue that came to the attention of the E1527 Task Group was that many companies running so-called AUL/Environmental Lien Title Reports were only searching the land records back to the last change in title, giving purchasers a false sense of security that there were no environmental liens or AULs. The Task Group proposes to address this issue by clarifying the methods for searching title in Section 6 and explaining that companies preparing AUL/Environmental Lien Title Reports must search the land title records back to 1980 for potential restrictions on title. Users who rely on these types of searches are encouraged to talk with the companies performing these searches for them to be sure that they are prepared to comply with this clarification of the current requirement.

6.2.1 Method 1 Transaction-Related Title Insurance Documentation Such as Preliminary Title Reports and Title Commitments – the user may rely on title insurance documentation, commonly fashioned as preliminary title reports or title commitments, which are prepared in the course of offering title insurance for the subject property transaction to identify environmental liens or AULs filed or recorded against the subject property. Title insurance documentation involves a reliable review of land title records or judicial records. See Appendix X1. However, the user (or a title professional engaged by the user) should closely review the title insurance documentation, particularly the areas of the documentation listing subject property encumbrances or “restrictions on record,” for indications of AULs or environmental liens.

6.2.2 Method 2 Title Search Information Reports Such as Condition of Title, Title Abstracts, and AUL/Environmental Lien Reports – Alternatively, users may rely on title search information reports to identify environmental liens or AULs filed or recorded against the subject property. Title search information reports, commonly fashioned as Condition of Title, Title Abstract, AUL/Environmental Lien or similarly titled reports, provide the results of land title record and/or judicial records research (as applicable) for information purposes only, rather than for the purposes of offering title insurance. Users may rely on title search information reports as long as the title search information reports meet the following scope.

6.2.2.1 Scope of Title Search Information Reports – Title search information reports shall identify environmental covenants, environmental easements, land use covenant and agreements, declaration of environmental land use restrictions, environmental land use controls, environmental use controls, environmental liens, or any other recorded instrument that restricts, affects, or encumbers the title to the property due to restrictions or encumbrances associated with the presence of hazardous substances or petroleum products. Title search information reports shall review land title records for documents recorded between 1980 and the present. In the case of jurisdictions that rely on the judicial records for filing of environmental liens, the judicial records shall also be reviewed for environmental liens filed anytime between 1980 and the present. If judicial records are not reviewed, the title search information report shall include a statement providing that the law or custom in the jurisdiction at issue does not require a search for judicial records in order to identify environmental liens.

Findings/Conclusion

For those who have always disliked the awkward phrasing of the conclusion in a typical Phase I report, the Task Group has now changed the phrasing (Section 12.7) so that it reads as an affirmative statement.

12.7.1 “We have performed a Phase I Environmental Site Assessment in conformance with the scope and limitations of ASTM Practice E1527-21 of [insert address or legal description], the subject property. Any exceptions to, or deletions from, this practice are described in Section [ ] of this report. This assessment has revealed no recognized environmental conditions, controlled recognized environmental conditions, or significant data gaps in connection with the subject property,” or

12.7.2 “We have performed a Phase I Environmental Site Assessment in conformance with the scope and limitations of ASTM Practice E1527-21 of [insert address or legal description], the subject property. Any exceptions to, or deletions from, this practice are described in Section [ ] of this report. This assessment has revealed the following recognized environmental conditions, controlled recognized environmental conditions, and/or significant data gaps in connection with the subject property:” (list).

Key Takeaways

Many of these proposed changes are quite nuanced but important and could lead to greater consistency in the findings and conclusions of Phase I ESA reports, if taken to heart by EPs. However, the proposed inclusion of “property use limitations” as a “required control” within the CREC definition remains extremely troublesome, as it appears to encompass mechanisms that are neither “land use restrictions” nor “institutional controls,” and therefore mechanisms that go well beyond the requirements of the 2002 Amendments to CERCLA or the 2019 EPA Common Elements Guide. The direction in which the ASTM E50 committee is headed puts EPs at risk of having to make legal judgments without a license, and their clients at risk of losing their landowner liability protections under CERCLA. It’s not too late to weigh in on this very important issue.

For more information or questions on the ASTM Phase I ESA Standard proposed changes, contact the author, who is chair of the ASTM Activity and Use Limitations Task Group as well as an active member of the ASTM E50.02 Committee and several of its task groups.

If you would like further information about this article and you do business in the USA, contact the article author:

Amy L. Edwards, Partner, Holland & Knight

Amy.Edwards@hklaw.com

Washington, D.C. 202.457.5917

Welcome to our Newest Client

We are pleased to welcome Focus Equities

as our latest client.

 

Roundhouse Marketplace Concept Drawing

The developer of Bayview Place, a 20 acre master-planned mixed-use, high density community overlooking Victoria’s Inner Harbour is reimagining a former Canadian Pacific Rail roundhouse as a community gathering place and a 70,000 sf grocery anchored retail property aptly named the Roundhouse Marketplace.

In addition to retaining the original 1913 industrial architecture of the property, Focus plans on adding a selection of box cars for pop-up retail and food and beverage operations.

The completed project will serve in excess of 83,700 people living in a 3 km radius and will have excellent exposure to more than 14,000 vehicles that pass the property daily.

We have been retained to provide strategic pre-development asset management services that includes developing a merchandising strategy, lease execution and establishing standard operating procedures, processes and policies. Effectively providing complete Asset Management “in a box” prior to the project opening in 2017.

If you are looking to develop a retail property and need a similar program for your project CONTACT US. We will proudly help you realize your vision.

A Retail Merchandising Mishap

I wrote about the importance of carefully crafting a retail use clause recently. Today, I read that greeting card and stationary company Paperchase has entered into wholesaling arrangements with Staples, an office supply company. This marks an expansion of the Staples use from office necessities to appealing to the general public by introducing greeting cards into their mix.

Paperchase also announced shop in shop concessions in the Hudson Bay stores in Canada and a desire to do the same in the USA.

Other uses such as grocery stores, pharmacies and many others are expanding their merchandising concepts as consumer’s tastes change and they grapple with omnichannel competition.

All this points to the need for carefully crafted restrictive use wording. Admittedly, I hate restrictive use clauses in leases when working for landlords; and attempt to get them in tenant leases when working with occupiers.

When working for tenants I start with getting an exclusivity clause that says something along the line of the following: “The Landlord won’t suffer or permit any other tenant to sell or permit to be sold any product, service or merchandise that conflicts with the Tenant’s use.” Please understand that I am not a lawyer and I’m not offering legal advice by providing this wording so please discuss this article with your lawyer and obtain the best wording for your circumstance.

But why do I start with that type of wording? The concept I want to get across in the negotiation is a true broad exclusivity within the property. Going back to the Staples/ Paperchase situation, let’s assume my client operated a card store. When my ficticous client entered into the lease, Staples was not in the greeting card business. Now they are a direct and large competitor.

While a prudent landlord would exclude large box stores, multi-department stores and anchors from any exclusivity restrictions; I’ve seen many leases that don’t exclude them.

From the landlord’s perspective, this type of wording is very dangerous. It is very difficult to manage a property with this type of wording, particularly when it is tied to poorly structured use clauses. For example, how would the landlord tell Staples, a national tenant, that they couldn’t sell greeting cards in this one specific location? If the landlord did nothing and my example greeting card tenant raised the exclusivity issue, then the Landlord has problems with this tenant. It creates an untenable situation.

The answer to the landlord’s conundrum is a well crafted use clause for each and every tenant, an exclusion to any restrictive covenants as noted above and wording in any granted exclusivities that is limited to the landlord leasing space to a competitor.

To learn more about this topic and how I can benefit your investments contact the author to arrange a 30-minute, no-obligation consultation.

Peter D. Morris is the principal consultant at Greenstead Consulting Group and an acknowledged expert of income-producing real estate.

He has a unique perspective gained from multiple roles in real estate including consulting, training, acquisition/disposition, leasing, asset management, development and property/facilities management as well as being the Chief Operating Officer of a publicly traded real estate company. He has a depth of knowledge in most real estate asset classes including multi-unit residential, mixed-use, retail, office, industrial and hospitality. Peter has worked with top companies such as Cadillac Fairview, Brookfield Properties, Marathon Realty, Grosvenor Americas and Colliers International. He also brings a global perspective having worked in 8 different countries including Canada, the USA, as well as countries in Asia, South America and the Middle East.

pdmorris@greensteadcg.com