In this week's Alabama Law Weekly Update, we present for your consideration a decision from Alabama Civil Court of Appeals. In the case, the Civil Court of Appeals reviewed the sufficiency of evidence presented at trial in a landlord-tenant breach of contract (lease) dispute stemming from contaminants discovered on the leased premises.
Tracker Marine Retail, LLC v. Oakley Land Company, L.L.C., No. 2140505 (Ala. Civ. App. Jul. 31. 2015) (holding that sufficient evidence was presented to support the trial court's judgment that a tenant had breached certain provisions of a lease in connection with contaminants discovered on portions of the premises)
In 1994, Dwayne and Nancy Oakley purchased a parcel of land on which a boat dealership and repair business was operated (the “business”). The Oakley's later deeded the property to Oakley Land Company, L.L.C. (“Oakley”). Oakley operated the business until October 1996, at which time it leased the premises to Travis Boating Center, Inc. (“Travis”). As required by the lease agreement (“the 1996 Lease”), a Phase I environmental survey was performed prior to the start of the term. The Phase I report contained no evidence suggesting a potential contamination of the premises. Ultimately, Tracker Marine Retail, LLC (“Tracker”) acquired the assets and liabilities of an affiliate of Travis, which itself had acquired the assets and liabilities of Travis. Throughout this time, both Travis and, later, Tracker continued to operate the business on the premises. In 2006, Oakley and Tracker entered into a new lease agreement with respect to the premises (the “2006 Lease”). Later, when a prospective buyer of the premises conducted soil tests, samples revealed elevated levels of petroleum hydrocarbons (“TPH”). After Oakley's efforts to discuss the matter with Tracker failed, Oakley dug up and hauled away the contaminated dirt, replaced it with fill dirt, and installed recommended equipment to prevent future contaminations.
Following Tracker's refusal to pay the costs incurred by Oakley, Oakley sued Tracker, alleging that it had breached certain provisions of both the 1996 Lease and the 2006 Lease. The trial court entered judgment in favor of Oakley, finding that Tracker was the source of the contaminants, that the contamination constituted a breach of the 1996 Lease and 2006 Lease, and that Tracker was liable for the clean-up costs incurred by Oakley. Tracker appealed.
On appeal, Tracker first argued that Oakley failed to prove that Tracker violated the “good condition” provision of the 1996 Lease and 2006 Lease. Tracker argued that the evidence only proved that Tracker operated the business since 1996 and that TPH was found in the soil in 2008, not that Tracker was the source of TPH. The Civil Court of Appeals, however, found that Oakley's expert testimony, along with other evidence presented at trial, was sufficient to support a decision that (1) the TPH contamination resulted from Tracker's activities, (2) such a contamination can impact the value of land and, as a result, (3) the premises were damaged (not in “good condition”).
Tracker next argued that the evidence failed to establish that it breached a provision requiring Tracker to assume liability for any required clean-up or repair attributable to hazardous materials. Tracker argued that it should not be held liable for Oakley's costs under that provision because (1) Oakley did not prove TPH was a hazardous material, (2) the levels of TPH in the soil did not violate any federal, state or local regulatory scheme and (3) no regulatory agency required the remediation or clean-up. With respect to the first argument, the court determined TPH is considered a hazardous material under some regulatory schemes, and could therefore constitute a hazardous substance under the lease. With respect to Tracker's second and third arguments, the court found that the provision under which Tracker was found liable did not require the contamination to be a violation of law or regulations, nor did it provide that the clean-up must be conducted pursuant to an order from a regulatory agency.
The Court of Civil Appeals also determined that the trial court properly held Tracker liable for the improvements to the premises. In arriving at this decision, the court noted that the 2006 Lease required “repair” of the premises.