It is generally the rule that a lessee who does not operate the property it rents will not be liable under CERCLA except in the unusual circumstance where the lessee qualifies as an “owner” of the property. Typically, this means that a lessee who sublets the rented property will not be liable under CERCLA. That was the holding in a recent federal case in New York, Next Millennium Realty, LLC v. Adchem Corp. There, the owner of a property contaminated with dry cleaning solvents sued a former tenant for CERCLA contribution because that tenant had sublet the property to a now defunct dry cleaner whose perchloroethylene had been released into the ground. Because the former tenant had only sublet the property and never operated it, the contribution claim rested entirely on the theory that the tenant could be held liable as a former owner of the site.
The district district court, however, rejected that theory. While the current owner argued that the former tenant should be liable as an owner because it was in the best position to police the manner in which the subtenant used and disposed of its perchloroethylene, the district court dismissed that argument as inconsistent with controlling Second Circuit precedent in Commander Oil Corp. v. Barlo Equipment Corp. There, the Second Circuit had clarified that a lessee, which was not an operator of the site, could only be CERCLA liable if he met the fact-specific test as a site owner. Quoting from the Commander Oil decision, the district court noted that among the relevant factors to determine whether a tenant was a site owner were factors such as:
(1) whether the lease is for an extensive term and admits of no rights in the owner/lessor to determine how the property is used; (2) whether the lease cannot be terminated by the owner before it expires by its terms; (3) whether the lessee has the right to sublet all or some of the property without notifying the owner; (4) whether the lessee is responsible for payment of all taxes, assessments, insurance, and operation and maintenance costs; and (5) whether the lessee is responsible for making all structural and other repairs.
Even though the former tenant had a triple net lease and had the right to occupy the property, the district court found that was not sufficient to qualify the former tenant as an owner given that the landlord continued to control many of the indicia of ownership, such as the right to sell the property without the tenant’s permission, the right to terminate the lease if the property was destroyed by fire, and the right to the return of the property in good condition.