Beware of Environmental Liability

Recently a restaurant proprietor wanted to determine his liability for payment of a tax bill to the City. Two previous tenants had operated restaurants out of the premises.

So, here’s what happened. The first tenant undertook some renovations to install the additional washrooms required for a restaurant. The Landlord who was the owner of the plaza agreed. There was, however, a small error made by the plumbing installer. The sanitary drain was connected by mistake to the storm sewer system. This resulted in waste products being discharged into a local creek. This situation went unnoticed for several years until there was a complaint by a neighbour. The City investigated, rectified the damage and sent a bill for the cleanup to the owner of the plaza. I should tell you this wasn’t cheap. The bill for the cleanup was over $ 40,000.00.

The applicable law in this situation is the Environmental Protection Act. In Ontario, this is a strict liability statute. It doesn’t matter whether it’s your fault, you may still be responsible. The Act imposes liability upon a “person responsible” who is defined to be the owner or the person having charge, management or control of a source of a contaminant. In this case, the noxious waste products were initially under the control of the restaurant proprietor and flowed from his plumbing system into the common system for the plaza before they entered the City’s storm sewage system.

The Act imposes liability upon the owner of the plaza as well as the restaurant proprietor. So far, so good! That seems to make some sense. But, there are a few complications.

The present owner of the plaza received the bill, but the contamination took place before he owned the plaza. The same was true for the tenant. The first tenant undertook the faulty work, sold the business to the second tenant (when the contamination occurred), who sold it to the present restaurateur.

However, under the Act, there may very well be liability imposed upon each of these individuals. The incidence of the liability can be shifted to another by contract, but it cannot be avoided. So, if the owner receives the cleanup bill and fails to pay it can be added to the municipal taxes. And, of course, most leases shift taxes to the tenant.

In this case, the present tenant is obligated to bear the loss and is left with a right to recover funds from others. That’s not the City’s problem.

So, be careful about the risk of environmental liability and have the issue properly addressed in all leases and sale agreements.

Brian Madigan LL.B., Broker

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