Are you thinking of running a petrol station or in the process of purchasing a petrol or service station? You should know that in addition to the standard considerations of buying a business, there is also the environmental compliance requirements that continue long after your lease ends. Below, we will discuss the regulatory framework relevant to service and petrol station leases and how you can ensure you are compliant.

What is a Petrol Station Lease?

A petrol station lease is often a lease of the whole land which includes the service station business, the petrol tanks kept underground, and the petrol pumps located outside the service station shop. 

Each state has different rules and exceptions in determining if a lease is retail (and therefore afforded protection under the relevant retail act) or non-retail (meaning the commercial terms are negotiable between the parties without legislative intervention).

The major terms of petrol station leases are the same as any other lease and cover standard leasing issues such as: 

  • Rent payments and rent review amounts and procedures;
  • Length of lease and whether there are any rights to further terms;
  • General obligations of the tenant to repair and maintain the premises during the term;
  • Tenant’s rights to assign or transfer its interest in the lease;
  • Terms detailing what happens in the event the premises is damaged or destroyed (such as the tenant’s right of termination, abatement of rent, money payable);
  • Indemnities and releases;
  • How the lease ends and obligations upon termination or expiry of the lease.

Additional Obligations Specific to Petrol Station Leases

Tenants should also be aware of any state-based environmental Acts that may impact them. These laws regulate the reporting, testing and management of remedial work for contaminated land.

In NSW, the Contaminated Land Management Act 1997 (CLM), the Protection of the Environment Operations Act 1997 (NSW) and the Environmental and Assessment Act 1979 (EP & A Act) govern contaminated land. These Acts collectively confer power on the Environmental Protection Authority (EPA) to:

  • Declare land to be significantly contaminated land;
  • Order a person to undertake a preliminary investigation of land that EPA suspects to be contaminated;
  • Order a person to take management action where land is significantly contaminated;
  • Approve a voluntary proposal to manage significantly contaminated land;
  • Order that land that has been subjected to a management order or approved voluntary management proposal be subject to an ongoing maintenance order.

The hierarchy of people that the EPA may direct to take action are as follows:

  1. The person/s responsible for the contamination;
  2. The owner/s;
  3. The notional owner/s.

Reporting of Contaminated Land

Section 60 of the CLM requires a person whose activities have contaminated land, and the landowner, to notify the relevant EPA when they become aware of the contamination. In leasing, the onus then falls on both the landlord and tenant to report contamination of land. 

Some common provisions in a leasing agreement deal may consequently include:

  • An obligation on either the landlord or the tenant to carry out an environmental assessment report issued by an environmental site assessor at the commencement of the lease. 
  • An obligation to conduct a second environmental site assessment report at the expiry of the lease (usually done by the tenant at their cost). 
  • An obligation on the tenant during the term of the lease to comply with all laws and requirements of the EPA in connection with activities conducted on the premises including obtaining permits, approval or any licences issued by the EPA.
  • An obligation on the tenant to not cause any land contamination or allow pollutants to escape to adjoining land during the term of the lease.
  • An obligation on the tenant to provide written notice of any spill, leak or escape of contaminants from the premises when they become aware of it.
  • An obligation on the tenant to pay for any clean-up work, with a carve-out for the landlord’s negligence.
  • An obligation on the tenant to put together and provide the landlord with an EPA-compliant Environmental Management Plan before taking occupancy of the premises. The Environmental Management Plan will be an ongoing compliance report which details the activities on the Premises on an annual basis.
  • An indemnification clause whereby the tenant would need to indemnify the landlord for all claims in respect of the contaminants found on the land during and after the lease term (if the contaminants have escaped the premises) unless the landlord has caused or contributed to it through its negligence.
  • An obligation on the tenant to repair and maintain all equipment, fixtures and fittings on the premises during the lease term. This is unless the equipment, fixtures and fittings are part of the infrastructure of the premises (such as underground fuel tanks, fuel lines, pumps) which are considered to be capital expenditures and borne by the landlord

The importance of having formal written documents is so that there are no disputes as to who caused what contaminations, who is responsible for remediation works and what damages parties are entitled.

Commercial Considerations

Finally, it’s important to ensure other agreements are in line with the lease agreement, and consider the following: 

  • Fuel supply contracts terms;
  • Tank equipment; and
  • Prospective development in the surrounding area which may affect flow to the premises.

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Before buying a petrol station, it pays to do your homework and thoroughly understand the obligations a petrol station lease imposes so you can factor in compliance costs. If you have any questions or would like assistance reviewing or drafting your lease, get in touch with our commercial leasing lawyers on 1300 544 755.

Alyssa Huynh

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