Allocation of Environmental Liability

The interesting point here is to figure out ultimately who should bear the loss. This is not as simple as it sounds. Even though certain parties have had their liability strictly imposed under the Environmental Protection Act, does not mean that they can’t recover some of their losses from others.

Remember, in this case:

Original owner – simply agreed to the work (tenant’s contract)
Event occurred
Current owner – acquired plaza

As between the two owners of the plaza, they are both liable to the City for reimbursement of the cleanup costs. However, the tax bill will go to the current owner, and will stop there, unless he can recover under the terms of the agreement of purchase and sale. There are of course issues related to disclosure but that is a topic for another day. The agreement of purchase and sale governs. If the current owner has a right to recover it will be set out in that agreement.

First Restaurateur – undertook the work, hired the contractor (contractor sub-contracted the plumbing)

Faulty hook-up took place

Second Restaurateur – some waste products entered the creek

Third Restaurateur – moved in after the fact

The actual event occurred while the second restaurant was there, So, naturally there is some liability there. However, the first tenant was the one who authorized the faulty work. So, this tenant probably has the right to recover from the first tenant. But, it will depend upon their agreement concerning the takeover of the premises.

The third restaurant gets stuck with the bill. He may be able to recover from the previous tenant (in contract) should his agreement permit him to do so. Nevertheless, he can sue the first tenant in tort (unless this right was waived).

The current owner of the plaza is directly responsible to the City for the bill. Under the terms of the lease, he simply adds it to the TMI (taxes, maintenance and insurance) assuming that the lease contains broad enough wording to permit its recovery.

He may however, have another remedy. He might be able to get the first owner to pay in accordance with the terms of the agreement of purchase and sale. The first owner no longer has a lease with anybody, so he cannot (in all likelihood) pass this along to any of the tenants. He could sue in tort, and the parties liable to him would be the second restaurateur and the first restaurateur. The first was negligent (even if vicariously) for the improper and shoddy work. The second fellow did nothing wrong, however his liability is imposed strictly under the EPA.

Of course, don’t forget that the original plumber, the one who actually caused this entire mess, together with his company can be sued under the law of torts by all of those parties who were affected but didn’t have a contract.

Brian Madigan LL.B., Broker

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