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Environmental Concerns When Purchasing Property |
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When purchasing real property
today, the possibility of environmental contamination has become
a significant concern. As the owner of contaminated property,
you may also become the owner of a host of accompanying
responsibilities including statute imposed liability for
remediation orders or, in the event the government is forced to
step in and clean up the property, a government lien registered
against the property for their costs.
As a result, it is imperative that the parties to a real estate
transaction know what their obligations and potential
liabilities are at the beginning of a real estate transaction,
and not after the deal has closed.
Unfortunately for the purchaser, the general principle of caveat
emptor, "Let the Buyer Beware", is also the law in
Ontario when it comes to disclosing environmental contamination.
Further, although the province of Ontario has enacted the
Environmental Protection Act , the Act does not contain any
statutory disclosure requirements on the part of vendors in a
real estate transaction.
Although we would all hope that a vendor would wish to disclose
all known environmental problems in order to avoid the risk of
future claims of misrepresentation, latent defect, negligence or
fraud, the ultimate burden is nonetheless placed on the
purchaser in a real estate transaction to confirm the
environmental condition of the property.
In order to go about determining what the potential
environmental liabilities amount to, the first recommended step
is the completion of a non-intrusive Phase I environmental site
assessment.
If you're looking at a property which may be environmentally
contaminated in some fashion, it is recommended that the
Agreement of Purchase and Sale contain a condition entitling the
purchase to enter upon the property to conduct such a Phase I
assessment.
Ranging in cost from $1,200.00 to $2,000.00 plus in the Thunder
Bay region, such assessments are typically completed by
engineering firms and consist of the following:
1. a title search;
2. a site visit and inspection of the interior and exterior of
the property and consideration of adjoining property uses;
3. interviews with owners and occupants of the property;
4. search of government records; and
5. the preparation of a report documenting findings and
conclusions.
In the event the Phase I assessment brings to light some
potentially significant liabilities, the engineering firm may
recommend a more intrusive investigation, known as a Phase II
environmental site assessment, which includes soil and ground
water analysis.
In the event that a serious contamination is identified, site
remediation may be legally required under the Environmental
Protection Act R.S.O. 1990, c. E.19. If site remediation is
required, a further site assessment in the form of a Phase III
assessment may be required in order to define the extent of the
contamination and accurately estimate the remediation costs
involved.
In the event a property is environmentally contaminated, how do
the parties go about allocating responsibility for the
environmental liabilities? The answer: by carefully structuring
the relevant agreement, whether it be an Agreement of Purchase
and Sale or a lease agreement, to properly reflect the
allocation of environmental liabilities. This can be done
through the use of contractual provisions such as:
1. the use of representations and warranties;
2. indemnification and hold harmless clauses;
3. releases;
4. "as is" clauses, covenants and agreements to remediate, and
the purchase of environmental insurance.
Property owners are not the only ones who should be concerned
about environmental contamination. Under the Environmental
Protection Act, current and prior tenants are also exposed to
potential liability. And, where a tenant, though responsible for
actual contamination, is not able to address a contamination
problem, the liability will ultimately be foisted upon the
landlord-- innocent though they may be. |
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