Celebrating 10 years! 2007-2017

Liability for Prior Owner's Bad Acts

Transactional lawyer hoping some litigators could help out. blinx7702/17/17
Slim chance. What duty could a non-owner of real estate hav jeffm02/18/17
Only way liability transfers is if a business transfers. If jorgedeclaro02/20/17
Thank you, this is what I was assuming but it is nice to hav blinx7702/21/17
The purchase price of the asset and the documents for the tr thedudeabides02/21/17
Hey Dude: You are right, but in most commercial real esta blinx7703/05/17
blinx77 (Feb 17, 2017 - 5:44 pm)

Transactional lawyer hoping some litigators could help out. Just looking for general thoughts (its a state law issue anyways, and probably 0.1% of you are from the state that applies).

If a prior owner of a property created an unsafe environment, to what extent and under what theories could a purchaser be held liable for injuries resulting from specific incidents at the property that occurred prior to the transfer of title?

What about incidents that occurred after the Purchase Agreement was signed but before the transfer of property?

Assume that the damages are large and it's very clear the old landlord is potentially liable.

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jeffm (Feb 18, 2017 - 7:53 pm)

Slim chance. What duty could a non-owner of real estate have to a person injured on the land due to a condition on the land? If the non-owner created the condition or induced the injured party to his peril, maybe so, but that's not true premises liability like you seem to be wanting. Instead, that kind of liability would arise from the person's actual negligence or intentional torts.

If the property is being transferred in constructive fraud of the injured party's claim as a creditor, that could be a reason to seek some kind of injunction or extraordinary relief to preserve non-exempt assets which might be subject to execution. You don't want the liable party to wind up judgment-proof.

For certain conditions, such as toxic contamination, it is my understanding that federal laws (and maybe some state laws) impose liability on all owners in the chain of title for the clean-up (and maybe damages caused to others). I am guessing you are not dealing with environmental contamination issues.

If the property is being held in an entity and the purchaser is acquiring the entity (a "stock purchase"), your suit is against the entity. If it's not a "stock purchase," you are likely out of luck in terms of trying to impose liability on the new owner.

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jorgedeclaro (Feb 20, 2017 - 9:36 pm)

Only way liability transfers is if a business transfers. If it's just the property that transferred you should be fine. If more than that transferred, there might be an argument that the transfers makes you a successor in interest or de facto business sale. If you get sued, bring in original owner under a third party complaint with a claim for indemnity. Provide the documents showing date of transfer and details of the transfer, and then move for summary judgment.

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blinx77 (Feb 21, 2017 - 9:24 am)

Thank you, this is what I was assuming but it is nice to have a gut check.

One potential issue is that in commercial real estate transactions the leases get assigned to the new owner. If one of the injured parties was a tenant (I think that may be the case but don't have all the facts yet), that could create a risk because we would have a direct contractual obligation with that tenant. So we will need to be very careful with how the lease assignment is worded.

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thedudeabides (Feb 21, 2017 - 4:19 pm)

The purchase price of the asset and the documents for the transaction should have either a carve-out for existing contingent liabilities and/or some sort of hold-harmless or indemnification for this type of thing. In commercial real-estate transactions there will be an entire chunk of the document related to tenant injuries, financing and lien issues and any number of environmental liability disclosures and carve-outs. If you don't see this in the documents currently, I would suggest redrafting and perhaps even renegotiating the deal entirely.

--And to piggyback on JeffM's infinite wisdom, all of these items are for the incredibly rare circumstance that the purchaser of the asset assumes any liability whatsoever (we'll assume for argument, your lease makes that assumption happen).

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blinx77 (Mar 5, 2017 - 2:01 pm)

Hey Dude:

You are right, but in most commercial real estate deals the seller is a single-purpose entity. Unless those promises are backstopped by a creditworthy person or entity, in my opinion they are worth the paper they are written on.

I have in my career found it not that difficult to get indemnities from SPE sellers. Try telling the seller that you want the principal's name on that document too and all holy hell breaks loose.

That tells me something about how likely it is that the principals will honor the SPE seller's obligations if something were to go wrong.

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