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Owner Gets Taken to the Cleaners
by Ron Davis

The owners of an Ohio shopping center will not be able to pass along the costs of environmental tests and insurance required because of a tenantís type of business.

The shopping center, located in Toledo, had leased space to the tenant to operate a dry-cleaning business. And the environmental tests and insurance were a precondition for a loan when the shopping centerís owners decided to refinance the property. The lender apparently believed that the dry-cleaning business might spill or dump hazardous chemicals into the ground, thereby requiring an expensive cleanup effort in case of a loan default.

The shopping centerís owners paid nearly $30,000 for the environmental tests and insurance, then notified the dry-cleaning tenant that he must reimburse them. But the tests showed that the tenant had never spilled nor dumped any amounts of hazardous materials that would require cleanup. So the tenant ignored the demand for reimbursement.

The shopping centerís owners then sued the tenant, arguing that the lease compels him to pay the costs required by the lender. In fact, the lease does state that the tenant must pay for fire and other casualty insurance. So the shopping centerís owners maintained that such an obligation includes environmental insurance.

An Ohio court ruled in favor of the tenant, however. The shopping centerís owners then appealed.

An Ohio appellate court also ruled in favor of the tenant, explaining, ďThere was no evidence that the tenant violated any federal, state, or municipal law, rule, or regulation or that he is subject to any environmental cleanup or remediation order of any governmental entityÖ. Even when the evidence offered by the shopping centerís owners is construed most strongly in their favor, the tenant is not liable under the lease agreement to reimburse them for their payment of the site study and environmental insurance. Those charges arose as a direct result of the refinancing and the related activities and requirement of the lender and not as a direct result of the conduct of the tenant. (D & J Co. v. Stuart, 765 N.E.2d 368 [Ohio App. 6 Dist 2001])

Decision: October 2001
Published: April 2002



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