A New York appellate court recently held that a tenant operating a gasoline station prior to abandoning the premises was liable for costs of permanently closing and removing an onsite underground storage tank (UST), illustrating important lessons for owners and operators of facilities involving USTs.
New York's Appellate Division Third Department decision in the matter of RGLL, Inc. arose in a civil action by a gasoline station operator challenging an administrative determination by the New York State Department of Environmental Conservation (DEC). The DEC order had directed the operator/tenant to permanently close and remove the UST and pay a $68,000 fine. The tenant, who had operated the station since 1999, disputed the DEC determination on grounds that the tenant had vacated the station in 2003. Thus, the tenant argued, it was not the UST's "owner" when the DEC began enforcement proceedings in 2006. The tenant contended that ownership of all "trade fixtures" (tenant-installed equipment, including USTs) left at the site was transferred to the landowner in 2003. The tenant argued that the landowner, not the tenant, was required to follow the permanent tank-closure rules.
The appellate court rejected the tenant's assertions and upheld the DEC permanent-closure order and fine. The court found that the tenant initially owned the UST, since the tenant had installed the tank and registered as the UST owner in 1999. The court concluded that title to the UST did not transfer to the landowner when the tenant abandoned the property in 2003 because: (1) even after the 2003 "abandonment," the tenant had advised DEC that it would continue to monitor the UST pursuant to applicable temporary-closure regulations; and (2) the lease between landlord and tenant clearly stated that trade fixtures (a term that includes the UST) do not become the property of the landlord upon the tenant's abandonment.
Lessons for Owners and Operators
Among lessons to be learned from this decision are that lease terms regarding the ownership of trade fixtures or other personal property should be carefully reviewed. In this case, the lease specified that the landowner would not take over ownership of trade fixtures upon the tenant's abandonment of the premises. Commercial leases are frequently drafted to ensure the opposite result, so that a landowner may obtain ownership of potentially valuable trade fixtures if the tenant abandons the premises leaving unpaid bills. However, where the leased property contains a UST, the liability associated with the UST may far exceed its value as security.
Further, a fine imposed by DEC may be the least of a responsible party's concerns. The DEC order directed the tenant to permanently close the UST and imposed a fine. In practice, permanent closure often requires removal of the UST and implementing any "corrective action" required by DEC. If the UST is found to have leaked, "corrective action" may include remediation of any soil or groundwater contamination. Remedial measures can be costly. The cost of groundwater remediation alone could potentially exceed several times the $68,000 fine amount levied in this case.