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Who Owns the Premises When Determining Liability?

Author: Ronald E. Lyons Date: 09/28/2012

Categories: Corporate and Business Law, Real Estate Law

Can a mere real estate investor be liable for hazardous conditions in properties owned by others? That is not as clear as one might hope.

A recent Maryland case sought to determine who the “owner” of an apartment was for purposes of assessing liability for an occupant’s exposure to lead paint. Many different parties were sued as the property was owned, operated and managed by various companies, their agents and employees.

Motions were filed with the Court seeking to have the suit dismissed for various reasons, including a claim that one defendant did not own the property. One of the defendants filed affidavits alleging that another party actually owned the property and that it had no ownership, management or control of the property where the plaintiff lived. However, the plaintiff claimed that because this defendant had borrowed several million dollars from a bank and had secured that debt with a mortgage on the property it must have had some ownership interest in the property and therefore be liable for damages.

Because this defendant had borrowed money using the property as security, the plaintiff argued that the defendant’s interest was tantamount to “ownership.” However, there was no evidence produced to establish that this party managed the day-to-day operations of the property or that it was even remotely responsible for, or chargeable with knowledge of, the maintenance or leasing of the property.

The Maryland Court of Appeals affirmed a lower court ruling dismissing this defendant. The Court determined that the evidence and legal theory argued by the plaintiff relating to the mortgage did not meet the definition of “owner” within the meaning of the Baltimore housing code. Even though this defendant was dismissed in this case, investors in real estate are urged to be cautious by retaining qualified professionals to assess the health and other liability risks of properties, as well as by maintaining sufficient liability insurance even where one would not normally expect to need it. Naturally, carefully structuring the ownership of investment property is key, even where you may only be a financier.