Ontario Court of Appeal Provides Guidance on Landlord Liability for Historical Contamination

On November 6, 2017, the Court of Appeal issued its decision in Sorbam Investments Ltd v Litwack, 2017 ONCA 850, dismissing the plaintiff’s appeal of Justice Elizabeth C. Sheard’s decision in the Superior Court of Justice granting summary judgment to the defendants, 2017 ONSC 706.[1] The case revisits the issue of landlord liability for historical contamination caused by its tenant and provides guidance as to when a landlord may be held liable for its tenant’s acts and omissions in operating a dry-cleaning business or other business known to use hazardous solvents.

Background

This case arose from the plaintiff’s discovery in 2010 that the groundwater on its property (the “plaintiff property”) was contaminated with tetrachloroethylene (also known as PCE or PERC) believed to have originated from the abutting neighbouring property. The neighbouring property (referred to as the “Litwack lands”) is also contaminated with PCE.

The PCE contamination on the Litwack lands was discovered in September 2006 during the course of investigations as part of the sale of the lands to the current owner from the Litwack defendants. The Litwack defendants[2] had owned the property from 1970 to 2007 and had leased the lands to commercial tenants. There is some evidence that the Litwack defendants leased the property to a tenant who operated a dry-cleaning business in the early to mid-1990’s, which the plaintiff alleges is the source of the PCE contamination.

According to the Litwack defendants, they did not know that the dry-cleaning tenant was emitting contaminants during its tenancy and had no reason to inquire or investigate the tenant because they never noticed any actual spills or contamination by the tenant nor the tenant bringing chemicals onto the property or using them in its operations. In other words, the Litwack defendants had no reason to believe that the Litwack lands were contaminated by their dry-cleaning tenant or that the lands were the source of the plaintiff property contamination prior to their investigations in 2006. In addition, the Litwack defendants’ consultant in conducting these investigations concluded that the source of the contamination could not be identified, may in fact have been coming from the plaintiff property and that no remediation work was required, given that there was no ongoing commercial operation that could be identified or the source of the pollution, though annual monitoring was recommended.

The plaintiff commenced a claim against the Litwack defendants and the current owner of the Litwack lands. The dry-cleaner was not a party to the action, likely because it no longer carries on business and its principal no longer lives in Canada. The Litwack defendants brought a motion for summary judgment asking the Court to dismiss the plaintiff’s claim in its entirety.

Summary Judgment Motion

The motion judge held that she only needed to decide whether the Litwack defendants knew the activities of the tenant could or did contaminate the plaintiff property in order to dispose of the motion. This decision was based the Litwack defendants’s invitation to the Court to assume that a dry-cleaning tenant on the Litwack lands may have been a source of the contamination on the plaintiff property and that the Litwack defendants owned the Litwack lands at the time the plaintiff property was contaminated. Justice Shear accepted this invitation in analysing the motion before her.

Importantly, Justice Shear also accepted the evidence of the Litwack defendants regarding their knowledge (or lack thereof) of the activities of their dry-cleaning tenant. She further held that the Litwack defendants had acted reasonably in relying on the advice and recommendations of their consultant and that they only had reason to inquire into whether the Litwack lands were a potential source of the contamination on the plaintiff property after September 2006.

The motion judge ultimately held that based on the evidence before her, the plaintiff would not be able to make out its case in strict liability, nuisance, negligence or pursuant to section 99(2) of the Environmental Protection Act (the “EPA”). The Litwack defendants’ motion for summary judgment was therefore granted and the action was dismissed.

Motion Judge’s Consideration of Landlord Liability

Nuisance

A person is held liable in nuisance when he is responsible for an act indirectly causing physical injury to land or substantially interfering with the use or enjoyment of land or an interest in land, where, in light of all the surrounding circumstances, this injury or interference is held to be unreasonable. In the context of a landlord-tenant relationship, the liability of the landlord “flows from foreseeability” of the nuisance inherently part of the activity to be undertaken at the property. The nuisance must be authorized as part of the arrangement with the tenant and must be within the contemplation of the parties when the agreement was made. If a landlord “leases property for a use that would, by its nature, cause a nuisance, it bears part of the blame and shares in the responsibility for it.”[3]

 In Sorbam, there was no evidence that the damage or nuisance which may have arisen from the dry-cleaning operations on the Litwack lands was “plainly contemplated” by the lease. This finding was made in part due to there being no surviving lease before the Court and the motion judge’s factual findings that the Litwack defendants had no knowledge or reason to suspect any use of chemicals or contamination by the tenants until the environmental investigations in 2006. In addition, there was no evidence to suggest that the Litwack defendants authorized any of their tenants to contaminate the plaintiff property or knew any chemicals had migrated off-site.

Not only was the possibility of contamination not plainly contemplated by the lease, but all of the evidence before the Court led to the conclusion that the nuisance was neither foreseen nor foreseeable as inherently part of the activity to be undertaken by the tenant while leasing the Litwack lands. The motion judge therefore found that the test for nuisance had not been satisfied.

Negligence

With respect to its claim in negligence, the plaintiff in Sorbam argued that the Liwack defendants owed a duty to the plaintiff to take steps to confirm that the dry-cleaner’s operations did not or would not cause harm to the plaintiff.

The circumstances giving rise to a duty of care owed by a landlord to a neighbour require more than just leasing the property to a tenant who operates a dry-cleaning business. If those facts alone were sufficient to establish a duty of care, the landlord would then be required to play a role in the activities being carried out on the property in order to protect itself from liability despite having given up possession and quiet enjoyment of the lands through the lease.[4] As the duty of care is rooted in foreseeability and proximity, a landlord will rarely owe a duty of care to third parties for the negligence of a tenant.

However, a landlord may owe a general duty of care to an abutting landowner arising from geographic proximity to avoid acts and omissions which may cause harm to a neighbouring property.[5] An example of this type of liability can be found in Durling v Sunrise Propane Energy Group (“Durling”), a Divisional Court judgment granting leave to appeal a class proceeding certification decision.[6] In Durling, Justice Lederer considered the liability of a landlord who leased its property to a propane handling facility operated by Sunrise Propane Energy Group Inc. (“Sunrise”). In that case, Sunrise routinely contravened a safety order concerning the transfer of propane and failed to enforce a no-smoking policy at the facility. These acts and omissions ultimately led to an explosion causing property damage and contamination to nearby residents’ properties.

The circumstances in Durling were out of the ordinary because the landlord was alleged to have known of the inherently dangerous, unsafe and illegal conduct of Sunrise over an extended period of time. This amounted to foreseeability of the catastrophic harm that eventually occurred.[7]

Justice Shear easily distinguished the Durling decision from the facts in Sorbam. While the Litwack defendants certainly owed a duty to the plaintiff not to use the Litwack lands in a way that would pose a foreseeable risk to the plaintiff property, there was no evidence before the Court of any inherently dangerous, unsafe or illegal conduct of a tenant that would amount to foreseeability of the harm allegedly suffered by the plaintiff. Instead, the evidence before the motion judge was to the contrary.

Renting a commercial property to a dry-cleaner is not comparable to renting a property for a highly dangerous propane business or a business in which there is a risk of escaping gas, explosion and fire that likely result in property damage and personal injury. The motion judge therefore found that the Litwack defendants did not have a continuing responsibility to monitor the activities of its tenant nor to oversee or ensure that any regulatory body had properly discharged its regulatory obligation to monitor the activities of its tenant.

The plaintiff also alleged that the Litwack defendants had a duty to do “something” after discovering the contamination on the Litwack lands in 2006. The act or omission of the Litwack defendants is not identified by the plaintiff according to Justice Shear. The Court  dismissed this allegation on the basis that the Litwack defendants reasonably relied on the information provided by their consultant that the source of the contamination could not be identified, the contamination may have been coming from the plaintiff property and that no remediation work was required. On this basis, the motion judge again found that the harm to the plaintiff property was not foreseeable and that the Litwack defendants reasonably relied on the findings and recommendations of their consultant.

Other Causes of Action

The motion judge’s determined based on the fact that there was no evidence the Litwack defendants brought the pollutants onto the Litwack lands that they could not be found liable under the strict liability doctrine of Rylands v Fletcher.  Similarly, the Court quickly dismissed the plaintiff’s claim under section 99 of the EPA on the basis that the Litwack defendants neither owned nor controlled any alleged pollutant immediately before its first discharge and there was no evidence of a “spill” of a pollutant as defined by section 91(1).

On Appeal

The Court of Appeal affirmed the lower court decision. In particular, it found that the Litwack defendants’ lease of part of their lands to a dry-cleaning business was not, standing alone, sufficient to trigger a duty of care to a neighbouring land owner, such as the plaintiff, requiring the landlord to inspect or supervise the activity of their tenant.

Landlord Liability after Sorbam

Prior to Sorbam, it was at least arguable that dry-cleaning operations, alone, constituted a foreseeable risk of contamination to the leased lands and in turn neighbouring properties due to the high number of environmental contamination claims arising from improper handling and spills of dry-cleaning solvents. What is unique about Sorbam is that the Court confirms that the act of operating a dry-cleaning business, alone, is not sufficient to prove on a balance of probabilities that there are chemicals or hazardous materials stored on site or that there is a risk that such materials are not handled and disposed of in accordance with applicable regulations.

However, the outcome in Sorbam does not mean that a landlord who denies knowledge of its tenant’s activities will never be found liable to its neighbour. One should be reminded that the factual findings in Sorbam are unique in that they set the perfect stage for the Litwack defendants’ summary judgment motion. In particular, there was no evidence the Litwack defendants had any knowledge of the activities of their tenant beyond the fact that they operated a dry-cleaning business, the Litwack defendants did not discover the contamination on their property until after the plaintiff’s property had already been contaminated. The facts in future landlord liability cases will likely not be so advantageous to the moving party and will instead fall somewhere on the spectrum between the known highly dangerous business of Sunrise in Durling and the facts in Sorbam.

While the test for nuisance, negligence, strict liability and liability under section 99 of the EPA does not change as a result of Sorbam, the case does provide a clear fact pattern where a Court may find a landlord not to be liable for contamination to a neighbouring property caused by its tenant operating a dry-cleaning business or other business that habitually uses potentially hazardous solvents in its operations.