NY Ct Says Former Tenant Liable For Abandoned Tanks As Trade Fixtures

Federal and state underground storage tank (UST) programs impose closure obligations on the owners or operators of USTs that are taken out of service. If the tanks are to be inactive for a short period of time (the time period varies depending on the state), the tanks must comply with temporary closure requirements. Owners or operators of tanks that will not be used again must comply with the more stringent permanent closure rules.

The temporary closure requirements recognize that continued operations of the tanks may be important to the property (e.g, for the specific use of the property such as a gas station or perhaps to heat a building). As a result, temporary tank closure rules do not require inactive tanks to be removed. Instead, they must be emptied, capped and monitored. In contrast, permanent closure usually requires removal of the tank and implementing corrective action.

Closure obligations can be an important issue when a tenant vacates a property. Older leases that were originally executed prior to the UST programs and extended or renewed since then may not outline the respective obligations of the parties regarding the USTs. Worse are those leases that provide that any personal property left by the tenant becomes the property of the landlord. Since the UST obligations are imposed on owners and operators of the USTs, such a provision could impose liability on the owner for a tank it did not install or use. Sometimes, tenants will identify the landlord as the owner on the UST registration form.

A recent New York case, In re Matter of RGLL, Inc, 2011 NY Slip Op 08882 (App. Div-3rd Dept 12/8/11) illustrates this issue. There, a gas station operator installed USTs and was registered as the UST owner. The gas station closed operations in 2003 and the gas station operator/petitioner filed a temporary closure application with the NYSDEC.  The petitioner monitored the tanks from April 2003 through January 2006. The NYSDEC sought to have the petition implement permanent closure and when the negotiations failed, the NYSDEC filed an administrative complaint. An administrative law judge approved a penalty assessment of $68K  and ordered the petitioner to permanently close the tanks.

The petitioner filed an article 78 proceeding to review the administrative ruling. The petitioner asserted the tanks were trade fixtures that had become property of the landlord.  However, the trial court found the lease did not provide that trade fixtures became the property of the landlord. In addition, the court said there was suficient  evidence to show that the petitioner continued to own and operate the tanks.

While the appeals court affirmed the holding and the penalty assessment a, the appeals court modified the ruling that imposed individual liability on the petitioner’s officers, directors and employees.

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