The Michigan Court of Appeals in 1031 Lapeer LLC v Rice makes a decision that requires transferors (lessors and sellers) to provide full written disclosure of all known site contamination to the transferee (lessee and buyers) or be subject to rescission and damages

The Michigan Court of Appeals in 1031 Lapeer LLC v Rice  makes a decision that requires transferors (lessors and sellers) to provide full written disclosure of all known site contamination to the transferee (lessee and buyers) or be subject to rescission and damages.

In May 2006, plaintiffs and defendant entered into a lease agreement whereby plaintiffs would lease a gas station from defendant for a period of ten years. Apparently, the site of the gas station had been found to be a site of environmental contamination in 1996—a fact known by defendant but not disclosed to plaintiffs at the time of the lease. Plaintiffs contacted the Michigan Department of Environmental Quality (MDEQ) in late 2007 and were advised of the contamination. They thereafter initiated the instant lawsuit, alleging that defendant violated his statutory duty to inform them of the property’s status as a site of environmental contamination. Plaintiffs’ specific causes of action included silent fraud, fraudulent misrepresentation, and breach of lease. Plaintiffs sought damages as well as rescission of the lease

The Court held:

“Given that one who obtains ownership over or becomes an operator of a facility risks exposure to potentially significant, unanticipated costs and liability, public policy dictates that enforcement of a contract made without the disclosure mandate found in MCL 324.20116(1) would be against public policy. “It is well established that the courts of this state will not enforce, either in law or in equity, a contract which violates a statute or which is contrary to public policy.” Shapiro v Steinberg, 176 Mich App 683, 687; 440 NW2d 9 (1989). The trial court appropriately found the lease contract at issue to be void. “

The landlord’s failure to disclose to the tenant that the property had been determined to be the site of environmental contamination, as defined by MCL 324.20101(1)(o), voided the lease for a gas station. MCL 324.20116(1) prohibits transfers (i.e., the lease) without a written disclosure, and contracts founded on acts prohibited by statute or against public policy are void. See the full text of the opinion.

The proper procedure in a sale or lease of property that is contaminated should be to provide written disclosure of all contamination verified by a receipt of same by the buyer or lessee.

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