The landlord. Almost always, the landlord. Under federal law, the current owner of a property with a leaking underground storage tank can be held strictly liable for cleanup costs regardless of who installed the tank, who operated it, or what the lease says. That is the answer most landlords do not want to hear, and it is the one that matters most.
But "almost always" is not "always." Tenants can be liable too, depending on how much control they exercised over the tank and what the lease agreement says. And in some cases, both landlord and tenant end up sharing the bill. This article explains how UST liability actually works on leased commercial property, what CERCLA says about owners and operators, where lease language helps and where it does not, and what both parties should do the moment a tank problem surfaces.
The Comprehensive Environmental Response, Compensation, and Liability Act imposes strict liability on four categories of parties for the costs of cleaning up hazardous substance contamination. The two categories that matter for leased property are current owners and current operators. If you own the property, you are liable. If you operate the facility where the contamination exists, you are liable. Both can be liable simultaneously. And CERCLA liability is strict, meaning it does not require any showing of fault or negligence.
Here is what catches landlords off guard. CERCLA does not recognize private agreements between parties as a defense against liability. Your lease can say the tenant is responsible for all environmental conditions on the property. The EPA does not care. If the EPA or a state agency determines that the site needs cleanup, they will pursue the current property owner. The owner can then sue the tenant for indemnification under the lease, but that is a separate civil dispute. It does not stop the government from holding you responsible for the cleanup first.
CERCLA Does Not Care What Your Lease Says
This distinction destroys more landlord assumptions than any other fact in environmental law. A lease clause that says "tenant shall be responsible for all environmental remediation" feels like protection. It is actually just a contract right to sue your tenant after the government comes after you. If the tenant is bankrupt, dissolved, or simply refuses to pay, you are still on the hook.
A tenant becomes liable under CERCLA when they qualify as an "operator" of the facility. The legal test is whether the tenant had authority to control the operations or decisions involving the disposal of hazardous substances. Courts have been clear that this means authority to control, not actual control. If the lease gave the tenant the right to manage the tank, the tenant is liable even if they never touched it.
In practice, this comes down to what the lease allows. A tenant who operates a gas station and manages the underground storage tanks daily is clearly an operator. A tenant who rents office space in a building that happens to have abandoned tanks underneath the parking lot is almost certainly not an operator. The gray area is the tenant who leases a property knowing about the tank, has some contractual responsibility for tank maintenance, but did not install the tank and did not cause the contamination.
Courts have also found that tenants who lack authority to control the UST are not operators. In one federal case, a tenant who sublet a contaminated property was found not liable because the subtenant never had authority over the hazardous substance operations. The court examined the lease terms and concluded that the landlord retained the key indicia of control. What this means for tenants: if your lease does not give you authority over the tank, that fact can protect you. But you need the lease language to actually say that, not just assume it.
When the Tenant Is Liable as an Operator
In 2018, Congress broadened CERCLA's Bona Fide Prospective Purchaser defense to explicitly include tenants. Before this change, the BFPP defense was available only to buyers. Tenants had to rely on EPA enforcement discretion or on their landlord's BFPP status, neither of which was reliable.
Under the current law, a tenant can assert the BFPP defense if three conditions are met. The lease was entered into after January 11, 2002. The lease was not designed to avoid CERCLA liability. And the tenant meets one of three paths to the defense: the landlord qualifies as a BFPP and maintains that status, the landlord initially qualified but later fell out of compliance while the tenant maintained the requirements independently, or the tenant conducted its own Phase I Environmental Site Assessment before signing the lease and maintained compliance with BFPP obligations afterward.
The third path is the strongest because it does not depend on the landlord at all. A tenant who gets a Phase I ESA before signing a lease on a property with known contamination, and then exercises appropriate care and cooperates with any government response actions, has a federal defense against CERCLA liability. Most commercial tenants do not know this defense exists, and most commercial leases do not reference it. If you are about to sign a lease on a property that has or may have had underground storage tanks, getting a Phase I ESA before signing is not just due diligence. It is a legal shield.
The defense has limits. It does not apply to leases signed before 2002. It does not protect a tenant who makes the contamination worse. And it does not override state environmental liability laws, which may impose stricter standards. But for any tenant entering a new lease on a property with environmental history, this is the single most important protection available.
The Tenant BFPP Defense That Most Tenants Do Not Know Exists
A well drafted commercial lease on a property with underground storage tank history should address environmental liability explicitly. Most standard form leases do not, and the ones that do often get the allocation wrong by assuming that a single indemnification clause solves the problem. It does not. Here is what actually matters in the lease language.
The lease should distinguish between pre-existing contamination and contamination caused by the tenant during the lease term. These are two fundamentally different liability pools. Pre-existing contamination is the landlord's responsibility by default under CERCLA. Contamination from the tenant's operations is the tenant's responsibility. A lease that lumps everything together and assigns it all to the tenant is unenforceable against the government and may not even hold up in civil court if the contamination clearly predates the tenancy.
The indemnification clause should survive the expiration or termination of the lease. Environmental claims often surface years after a lease ends. If the indemnification dies with the lease, the party who caused the contamination walks away and the property owner absorbs the cost. Both landlords and tenants should insist on survival clauses for environmental indemnification.
The lease should require environmental insurance. A Pollution Legal Liability policy can cover both parties for cleanup costs, third party claims, and regulatory defense costs arising from known or unknown contamination. The cost of a PLL policy is a fraction of a single cleanup event. For properties with UST history, whether it is a former gas station with fuel tanks or a commercial building with a buried heating oil tank, this is not optional coverage. It is the only reliable financial backstop that works when indemnification clauses fail because the indemnifying party cannot pay.
What the Lease Should Actually Say About UST Liability
One clause most landlords forget: the right of entry for environmental inspections. If the landlord cannot access the property to verify the tenant's compliance with environmental obligations, the landlord is flying blind on a property where they hold the primary liability. Periodic inspection rights should be written into any lease involving regulated substances.
The worst liability scenario is not a tank that leaks during the lease. It is a tank that leaked years ago, was never discovered, and surfaces during a property transaction or routine compliance inspection long after the responsible tenant is gone. At that point, the contamination has been migrating through soil and possibly into groundwater for years. The cleanup cost has multiplied. The tenant who operated the tank may be out of business. And the current property owner is holding the bill.
This scenario plays out constantly in commercial real estate. A gas station operates for 20 years under a ground lease. The tenant closes the station and walks away. Five years later, the landlord tries to sell the property and the buyer's Phase I ESA flags the former UST operations. A Phase II confirms petroleum soil contamination. The landlord now faces a choice: spend $150,000 to $500,000 on remediation to get a closure letter and complete the sale, or try to find the former tenant and enforce an indemnification clause from a lease that expired half a decade ago.
If the former tenant is still in business and solvent, the landlord has a claim. If the tenant dissolved, merged, or filed bankruptcy, the landlord has nothing. This is why environmental insurance and pre-lease site assessments are worth every dollar they cost. The time to discover a problem is before it becomes a six-figure emergency with no one else to pay for it.
The Scenario That Creates the Most Expensive Disputes
CERCLA is the federal baseline, but state environmental liability laws can impose additional obligations. Some states have strict liability statutes that mirror CERCLA. Others go further. A few states impose liability on current owners regardless of any defense, including the BFPP defense, for state cleanup programs. The interaction between federal and state liability creates situations where a party protected under CERCLA can still be liable under state law.
State UST regulations also impose their own obligations on tank owners and operators that are separate from CERCLA. These include registration requirements, financial responsibility demonstrations, release reporting obligations, and closure requirements. Failing to meet state UST obligations does not automatically trigger CERCLA liability, but it can create independent state enforcement actions with their own penalties and cleanup mandates.
The practical implication: do not assume that qualifying for a federal defense means you are clear on all fronts. If your leased property has UST issues, consult an environmental attorney who practices in the state where the property is located. Federal law is only half the picture.
If you are a landlord who just learned about a UST on your property, the first step is not calling a lawyer. The first step is calling a licensed UST contractor to assess the situation. You need to know what you are dealing with before you can make legal or financial decisions. Is the tank still in the ground? Has it leaked? Is there contamination in the soil? Soil testing can answer those questions in days. A lawyer cannot.
State Laws Can Make This Worse
If you are a tenant who just discovered you are on a property with tank history, check your lease for environmental provisions. Then get a Phase I ESA if you do not already have one. If the lease was signed after 2002 and you conduct appropriate inquiry, you may qualify for the BFPP defense. Document everything. Cooperate with any government inquiry. Do not disturb the tank or any potentially contaminated soil without professional guidance.
If you are negotiating a new lease on a property with known or suspected UST history, insist on three things: a pre-lease Phase I ESA, an environmental indemnification clause that distinguishes between pre-existing and tenant-caused contamination, and a Pollution Legal Liability insurance requirement. These three provisions cost a few thousand dollars combined. A single uninsured UST cleanup starts at $100,000.
If the tank is active and needs to be closed, or if contamination has been discovered and you need a remediation estimate, request a quote from a licensed contractor in your state. Whether you are the landlord or the tenant, the cost of the problem does not go down while you argue about who pays for it. Our guides to UST closure requirements and buying commercial property with a UST cover the closure process and liability framework in more detail.
Liability disputes over underground storage tanks on leased property can drag on for years. The contamination does not wait for the dispute to resolve. It migrates. It gets more expensive. And every month that passes without action is a month where both parties are losing money. Get the site assessed. Get a number. Then figure out who pays.