Landlords/investors involved in selling or refinancing tenanted properties may need to carry out intensive environmental tests to satisfy the buyer/lender. Can landlords do these without the tenant’s co-operation, for which a tenant may seek a high price? Leases of commercial property reserve specific rights of entry for landlords. Can these be exercised to allow an intrusive environmental investigation during the lifetime of a lease whilst a tenant is in occupation? Without an express reservation, it is highly unlikely that any commercial property lease would be interpreted to permit an environmental survey that would disrupt the tenant from carrying out its normal business.
Kwik-Fit has tested this in the past year in both England and Scotland, and the result was the same. In the case heard by the English High Court Heronslea (Mill Hill) Ltd v Kwik Fit Properties ltd, the Kwik-Fit unit had been a petrol filling station at one time, so the potential for soil contamination was high. The landlord wanted to drill 13 boreholes to a depth of five metres and one 20-metre deep borehole. The potential for disruption was high so Kwik-Fit refused access.
The lease granted in 2000 reserved for the landlord a right to enter onto the premises to inspect and make surveys and drawings. The landlord hoped this would cover its intrusive environmental survey. The High Court held that it could not, saying:
- No reasonable person would have thought that a right granted in the year 2000 to enter to survey would have expected that to cover the drilling of boreholes and taking of samples
- The ordinary meaning of a right to enter ‘on’ to property to ‘survey’ dating back to 2000 did not include a survey of what was under property
- The tenant had a right to quiet enjoyment, which the investigations would disrupt
Given the significant due diligence now required when potentially contaminated land is sold or financed, landlords of land that may be contaminated need to think ahead. Do they want to keep quiet when granting a lease and hope that the usual tenant covenants cover any liability for historic contamination; or do they want to raise the issue and reserve the right to carry out environmental investigations? If they do that, they will have to expect the tenant to exclude liability for historic contamination.
In our opinion, it is appropriate for landlords to reserve rights and consider all the issues at the outset. Hoping that contamination is covered by implied lease terms may be simplistic and might lead to trouble if a tenant cannot pay the costs in any event.
Tenants of leases drafted some time ago may receive requests from their landlords to allow them onto the property to investigate, but do not have to consent unless they have a very unusual lease covering the point. Tenants may be able to use this as a bargaining chip. They certainly should require the work to be undertaken in line with a pre-agreed method statement containing provisions to minimise disruption, consider requiring a rent cesser, and obtain an indemnity from their landlord for loss or damage suffered as a result of the investigation. They may want an exclusion for any historic contamination discovered there (unless they caused it).
Landlords facing a refinancing requirement to produce environmental investigations before a loan can be made, may have some difficult negotiations either with the lender or the tenant.