Considerations For Real Property Owners In A Post-9/11 Environment

Thursday, February 1, 2007 - 01:00

Experiencing A Tragedy

We all remember that horrible day. The World Trade Towers had collapsed, the Pentagon Office Building suffered a burning, gaping hole, and the earth somewhere in rural Pennsylvania lay scorched.Worst of all, thousand of lives were lost that day, as well as our sense of invulnerability. That day, of course, was September 11, 2001.

It was unlike many other contemporary horrific acts of war; this was different. The images displayed on televisions and the Internet were so candid. The tragedy was so physical. Like so many other Americans, viewing the skyline of lower Manhattan without those two colossal towers was surreal. I remember finding it curious that the tower had collapsed so easily.Weren't they designed to withstand such a hit, I thought. Why did so many people have to make their escape in complete darkness? The answers are immaterial. The towers are gone, thousands are dead, and this country is now embroiled in a conflict in the Middle East with no imminent end. Instead, we must ask ourselves, "how do we attempt to avoid similar tragedies in the future?"

This article explores some of the steps that commercial property owners can take to prevent similar tragedies in the future, and provides an overview of certain legislation and recommendations made in the wake of 9/11 affecting commercial property owners.

Preventing A Tragedy

NFPA 1600. In the wake of the tragedy, the 9/11 Commission determined, among other things, that no widely embraced private-sector emergency preparedness standard existed in the United States commercial real estate industry. According to the Commission, this fact was especially distressing given that the private-sector controls 85% of what the Commission termed "critical infrastructure." As a result, the Commission engaged the American National Standards Institute (ANSI) to develop a recommendation on emergency response and business continuity. What the 9/11 Commission Report Means to Real Estate Owners, 5 Boston J. Risk Mgmt. 1 (2003)

On April 29, 2004, the ANSI proposed that National Fire Protection Association (NFPA) 1600 be adopted by the commercial real estate industry in the United States as a voluntary national standard for emergency response and preparedness.The key standards established by NFPA 1600 are:

• developing a business continuity plan;

• selecting third party contractors to respond to an emergency; and

• implementing (and practicing) a plan to communicate with tenants, off-site contacts, and property owners during emergency situations.

To comply with NFPA 1600's security standards, real property owners should:

• develop a business continuity plan that ensures that operations can be continued despite a terrorist attack or other emergency. This plan should be audited and updated occasionally to confirm that evolving standard are met, and should address ensuring that structural, electrical, and mechanical engineers are available either on the premises or by third party contract 24/7;

• select third party contractors to respond to emergency situations, including situations that may affect multiple buildings and facilities; and

• implement a plan to communicate with tenants, off-site contacts, and others during emergency situations.In this regard, companies should make a particular effort to keep employee and tenant contact information updated regularly.

Commercial property owners are also well advised to conduct a risk analysis of their real property. In conducting this analysis, a company may want to consider means of:

• controlling vehicular and pedestrian access around the perimeter, at entrance points and common areas of its facilities. This may be accomplished by installing security cameras, erecting physical barriers, relocating entry points and loading docks; and controlling building access through turnstiles, access cards and other security procedures;

• protecting data centers and other critical functions; and

• protecting vulnerable infrastructure and building systems, such as electrical, mechanical, plumbing and communications systems.

Additionally, in the planning of future facilities, companies may want to consider hiring architects, engineers, and security consultants experienced in hardening buildings against attacks.Methods that can be employed to make a building more likely to withstand an attack similar to those experienced on 9/11 include using hardened or laminated building materials, constructing reinforced or concrete building cores, encasing exterior steel columns in concrete, and using non-combustible carpets and fabrics. Relocating parking facilities so that they are further from main buildings is a simple strategy that could have prevented that 1993 World Trade Tower attack.Consideration should also be given to means of preventing cyber terrorism.Advanced firewalls, virus protection, off-site data back-up and other electronic means of preventing critical data from degradation are all musts in this new era.

Executive Order 13224. Following 9/11, real property estate owners are now required to comply with Executive Order 13224, entitled "Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism." This Executive Order allows the United States government to designate and block the assets of individuals or entities who aid, support, or guide terrorist activities. The United State Treasury Department's Office of Foreign Assets Control (OFAC) publishes a list of individuals controlled by, or acting on behalf of, targeted countries, titled the list of Specially Designated Nationals and Blocked Persons, and Executive Order 13224 prohibits all transactions involving property that is owned in whole or in part by any individual whose name appears on the aforementioned list. Executive Order 13224 also imposes penalties ranging from $50,000 to $1 million and prison sentences of ten to thirty years for violations of the Executive Order. One means of complying, or at least attempting to comply, with Executive Order 13224 that is now routinely employed by commercial landlords is to include representations and warranties in their leases providing that neither the tenant, nor any officers, directors, employees and/or agents of the tenant, are Specially Designated Nationals and Blocked Persons as determined by OFAC.

TRIA. Prior to 9/11, terrorism coverage was included in most policies of commercial building insurance. Since 9/11, however, terrorism coverage has become very expensive and, despite what the law might mandate, many insurance carriers are no longer offering this type of coverage to their policy holders. As a result, many property developments have been cancelled or significantly altered due to this increased cost of doing business. In response, the United States Congress passed the Terrorism Risk Insurance Act of 2002 (TRIA) (which was later extended until December 31, 2007). TRIA requires all commercial property and casualty insurance companies to make terrorism insurance coverage available to all commercial property and casualty policy holders. In exchange, the Federal government subsidizes the cost of this coverage. However, because TRIA only extends to "acts of terrorism," as certified by the U.S. Treasury Secretary (meaning acts carried out by foreign persons resulting in losses that are in excess of $5 million), and because TRIA does not stipulate the amount that insurance companies can charge for terrorism insurance, its effects are very limited and terrorism insurance is still hard to obtain.

Conclusion

As discussed above, there are numerous things that commercial property owners can, and must, do to avoid a tragedy similar to the one that we all experienced on 9/11, including, adopting measures to meet NFPA 1600's security standards, complying with Executive Order 13224, and purchasing terrorism insurance. These measures are expensive and require considerable time and attention to achieve. However, they may be what is necessary to avoid other large scale building disasters.

This article is reprinted from the December 4, 2006 issue of The Legal Intelligencer. Copyriight 2006 ALM Properties Inc. Further duplication without permission is prohibited. All rights reserved.

Jonathan M. Grosser is a Partner in the business practice group of Stradley Ronon Stevens & Young, LLP, located in the Philadelphia office. Mr. Grosser's recent work includes serving as counsel to a large pension fund in connection with the sale of a multi-building office development, representing a financial institution in connection with a lease for new corporate headquarters, and serving as counsel to a leading diversified personal and institutional asset-management company in connection with numerous nationwide commercial leases. Mr. Grosser also serves as counsel to a number of national and regional retailers. He can be reached at (215) 564-8101.

Please email the author at jgrosser@stradley.com with questions about this article.