## Facts

- A landlord leased an entire industrial warehouse-type building to experienced commercial tenants under a long-term lease negotiated through brokers.
- Before execution, tenants received written notice that asbestos might be present; they inspected but did not further investigate hazardous materials.
- The lease placed broad “maintenance and repair” duties on the tenants, largely eliminated landlord repair duties, and contained no landlord representations or warranties about the premises’ condition.
- The lease included a narrowly drawn compliance-with-laws clause that did not expressly address preexisting asbestos or environmental hazards.
- Government authorities later required asbestos abatement, creating substantial compliance costs.
- The landlord sought to require the tenants to pay the abatement costs; the trial court entered judgment for the landlord, and the court of appeal affirmed.

## Issues

1. Under a commercial lease of an entire building with broad tenant maintenance/repair duties and a narrow compliance-with-laws clause, who bears the cost of government-mandated abatement of preexisting asbestos not expressly addressed in the lease?

## Decision

- The Supreme Court of California affirmed the judgment for the landlord.
- The court held the tenants were responsible for the costs of asbestos removal required by the government order.
- The court rejected special “environmental” rules for allocating asbestos-abatement costs in commercial leases and applied traditional lease interpretation principles.
- Given ambiguity in the compliance-with-laws clause, the court relied on established criteria and the transaction’s context to determine that the tenants had assumed the compliance burden.

## Legal Principles

- In nonresidential leasing, traditional rules of contract and lease construction generally govern allocation of compliance and repair burdens, including hazardous-materials abatement.
- Courts construe the lease terms to determine the parties’ intent and then test that construction against established criteria used to decide whether a tenant assumed substantial, owner-like risks.
- Responsibility for government-ordered work may turn on context, including: whether the tenant leased the entire premises, the parties’ sophistication and bargaining position, the degree to which the lease shifts ownership-type risks to the tenant, and whether the tenant had notice of potential hazards.
- When lease language is ambiguous on responsibility for government-mandated alterations unrelated to the tenant’s particular use, courts may apply judicially developed criteria to allocate the burden consistent with the lease’s risk-shifting structure.

## Conclusion

The court held that, on these facts, the lease allocated to sophisticated commercial tenants—who leased the entire building, accepted broad maintenance/repair obligations without landlord warranties, and had notice of possible asbestos—the duty to pay for government-required asbestos abatement, and it affirmed judgment for the landlord.


Brown v. Green, 8 Cal. 4th 812, 884 P.2d 55, 35 Cal. Rptr. 2d 598 (Cal. 1994)