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 property.
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 environment.
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 environment.
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
