When leasing commercial property in Ontario, one of the most
significant risks faced by both landlords and tenants relates to
potential liability for environmental contamination on the
There are a number of Ontario statutes that, directly or
indirectly deal with the protection of the environment.
Although the main Act is the Environmental Protection Act
("EPA"), a number of other Acts may also apply.
The basic prohibition in the EPA deals with the discharge of a
contaminant into the natural environment in an amount,
concentration or level in excess of that prescribed by
regulation. EPA defines "contaminant" very broadly,
to include almost everything that results, directly or indirectly,
from human activities that cause an adverse effect on the
environment. There is a duty imposed on a person having
control of a spilled contaminant and every person who causes or
permits the spill to notify the Ministry of Environment
("MOE"), to take steps to prevent and eliminate the
adverse effect of the spill and to restore the natural
In the context of a lease, the EPA imposes a liability on the
"person responsible" for the source of the
contaminant. This broad definition places special liability
on the owner of the property, the tenant, and the person having
management or control of the leased property when the environmental
contamination is discovered. The person responsible has a
positive obligation to prevent the contamination regardless of
fault. As a result, liability may arise even if the landlord
or tenant did not cause the environmental contamination.
There is much written with regards to different ways landlords
or tenants can attempt to minimize exposure to liability for
environmental contamination. This blog will not go into those
details, and will also not go into depth on the extent of the
liability, which extends to the officers and directors of a
corporation if that corporation is a person responsible.
One option not regularly discussed, however, is a concept of a
"pie crust" lease, which is an attempt by a tenant to
reduce exposure to environmental liability, especially where there
is historic contamination in the subsoil. Essentially, the
tenant will lease the surface only, together with the minimum
amount of ground to incorporate the foundation's underground
services. Some pie crust leases are even more limited, with
the lower surface limited to the surface of a concrete floor or
asphalt surface. Although this type of lease is more
complicated, such provisions need to be made for services to pass
through the ground underneath and, if needed, a right for the owner
of the subsurface to access the subsurface through the tenant's
unit, a pie crust lease can be effective in reducing the
tenant's exposure to liability as a tenant under a pie crust
lease would not occupy contaminated subsoil.
In commercial leasing there is no "one size fits all",
and there is no guarantee that the landlord would agree to enter
into a pie crust lease. A pie crust lease is a tool your
lawyer should have available to you when you are considering
leasing commercial property that may be or may become contaminated
because you cannot be too careful when it comes to the
Russell v. Township of Georgian Bay provides a useful reminder of the fact that while municipal officials sometimes appear to hold all of the cards in disputes with home owners, that is not always the case.
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