by Jacquelyn Stevens
What is your risk tolerance?
Key Things to Think About when Buying or Selling a Dry Cleaning Business
Negotiating the sale of a dry cleaning business, as either the ven- dor or the purchaser, involves significant time and effort. While most discussions during the sale will focus on the purchase price, the equipment and the business’ goodwill, it is important to also consider and allocate environmental liabilities. Without this con- sideration, the party who remains ‘on the hook’ or who becomes responsible for environmental liability (perhaps unknowingly) may not be getting as good a deal as they think.
BACKGROUND ON ENVIRONMENTAL LIABILITY Dry cleaners have historically used tetrachloroethylene (perc) as the solvent in dry cleaning machines. While perc is extremely effective at cleaning clothing, it is also a toxic and persistent envi- ronmental contaminant. If released into the natural environment, perc accumulates in soil and groundwater and degrades slowly. At high concentrations, perc can also adversely affect human health. While many dry cleaners are moving away from using perc, other solvents may still attract environmental liability. Dry cleaners and their corporate officers and directors must be aware of two areas of environmental liability – regulatory liability and civil liability:
Regulatory Liability
For perc users, Environment and Climate Change Canada has enacted the Tetrachloroethylene (Use in Dry Cleaning and Reporting Requirements) Regulations under the Canadian Environmental Protection Act, 1999. The Regulation creates offences for: improper storage of perc, improper secondary containment systems, and improper disposal of perc, among others. Dry cleaners can be prosecuted for contraventions of the Regulation. Typical penalties include fines that increase with each conviction. Jail time is also possible.
In most provinces, any spills or release of perc or other dry
cleaning solvents/chemicals must be reported under applicable provincial environmental legislation. Prosecutions for offences under these provincial environmental laws may also occur. Dry cleaners must also be aware of any municipal regulations impacting dry cleaning operations.
Civil Liability Dry cleaners are often sued when dry cleaning chemicals/sol- vents and degradation products are in soil and have migrated in groundwater from the dry cleaner’s property to an adjacent property. Dry cleaners may also be sued by the landowner, if the dry cleaner is a tenant, for contamination at the property where the dry cleaner operates. Such lawsuits often include claims against all current and prior owners and operators of the dry cleaning business, and current and prior owners of the property where the dry cleaner is located. If the claim is success- ful, the dry cleaner(s) and or the property owner may be liable for either the cost to remediate the contaminated property and/ or the cost of diminution in value of that property.
12 FABRICARE CANADA March/April 2020
Concurrent Liability
Regulatory liability and civil liability are not mutually exclusive. Dry cleaners may face both types of liability concurrently. Cor- porate officers and directors with management and control of a dry cleaning business may also be named in any legal proceed- ing. The recent case of Alizadeh v Ontario (Ministry of Envi- ronment, Conservation and Parks) affirms that the evidentiary burden on a corporate director to rebut a presumption of man- agement and control is extremely high. Individuals with control of a pollutant may also be held liable. In Midwest Properties v Thordarson, the Ontario Court of Appeal found an individual who had control over a contaminant liable to pay damages under Ontario’s Environmental Protection Act. The contami- nant migrated off-site, impacting a neighbouring property.
SALE OF LAND VS. SALE OF BUSINESS In order to evaluate and minimize liability, it is important to first con- sider what the vendor is selling. Is the vendor selling a piece of prop- erty and its dry cleaning business? Only the property where there is or was a dry cleaning business? Or only the dry cleaning business? Regulatory and civil liabilities are not limited to the current oper- ator of a dry cleaner, and past practices by dry cleaners can come into play.
A purchaser of a piece of property that has been historically used for on-site dry cleaning may inherit environmental liability because of previous contamination at the property. A purchaser of a dry cleaning business may inherit any liability the business has previ- ously incurred. The vendor should consider what the vendor is selling and, if applicable, what the vendor is keeping. For example, if the vendor sells only the dry cleaning business but continues to own the property, the vendor may continue to hold environmental liabil- ity, or may attempt to transfer some or all of that liability to the purchaser of the dry cleaning business.
ENVIRONMENTAL DISCLOSURE
Disclosure is an essential part of any sale, and environmental dis- closure is no different. The vendor and the purchaser should care- fully consider what, if any, environmental disclosure is being made and what, if any, reliance is being put on that disclosure.
Photo credit:
Matthew_Hull@morguefile.com
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