Environmental law meets real estate law
AdviceSep 27, 2011
There is no excuse today for real estate agents to not be aware that the environmental status of properties needs to be addressed in the purchase agreement. By becoming aware of the issues, sales reps can avoid unexpected environmental issues.
Environmental liability is applied to a wide range of actors, not just the polluter. There are methods to investigate and if required remediate the contamination. The level of due diligence required varies with the nature and use of the property, both past and future.
In Ontario, the primary tool is an environmental site assessment (ESA) for this investigation. This starts with what is referred to as a Phase I – mainly a paper search to determine actual and potential site contamination both on and off-site. A Phase I usually takes two to three weeks and costs approximately $2,000 to $3,500.
A Phase II is considered an intrusive investigation to assess potential or known impacts to the soil and groundwater. Usually boreholes and monitoring wells are installed. Samples are taken and analysed at a laboratory. The cost varies with each project. There are many activities that are inherently high risk to cause contamination. A short list would include chemical plants, battery manufacturing, recycling facilities, asphalt manufacturing, electroplating, metal fabrication, circuit board manufacturing, steel works, leather tanneries, ship building, repair yards, textile mills, drycleaners, scrap yards, service stations and properties with underground storage tanks.
ESAs are important to allow for the risk/cost to be allocated properly. If a vendor has an ESA completed prior to offering the property for sale, the vendor can dictate the terms in the agreement, which could include restrictions on the future use of the property to limit liability. The vendor might also choose to remediate the property prior to the sale to maximize the sale price and increase interest.
Professionals should be involved early. Full disclosure and indemnities are key to limiting liability. A record of site condition (RSC), which is available under the Environmental Protection Act (again, in Ontario) can provide immunity to the current and future owners if required in the purchase agreement. It is important to be aware that an RSC is required under the Environmental Protection Act when the use is changing to a more sensitive use – for example, industrial to residential.
Real estate agents need to be aware that environmental contamination is best addressed in the purchase agreement. Former owners may still be liable even when selling on an “as is” basis. Purchasers may be liable for existing contamination, ongoing mitigation or off-site discharges. Agreements that properly allocate the risk and cost are complicated. Representations and warranties need to be clearly drafted. Covenants and conditions to closing are likely required. Indemnities are key but only as good as the party providing the indemnity, which is why holdbacks, securities and environmental insurance might be required.
To avoid the tricks and traps associated with contaminated properties, environmental issues should be addressed early. Knowledge of the risk/issues can lead to solutions.
Shari Elliott is a lawyer practicing environmental and real estate law in Barrie, Ont. at Elliott & Elliott. For more information on contaminated properties contact her at Shari@elliottlawyers.com.