Due diligence is an essential part of any real estate transaction. In a residential real estate transaction, searches are typically performed to determine if there are any issues with respect to title, encroachments, work orders, open building permits, arrears in taxes or utility bills, and writs against the seller. Of course, every property is unique and additional searches may be required depending on the particular situation. In a commercial real estate transaction, it is important to conduct searches for not only the above-mentioned issues but also for additional matters that can especially affect commercial properties. Failure to conduct proper due diligence can expose the purchaser to significant liability. In today's post, we will focus on liability for environmental issues and how you, as a purchaser of a commercial property, can take steps to protect yourself.

Environmental Liability

Under Ontario's Environmental Protection Act, RSO 1990, c E.19, current and former owners of a property can be held liable for environmental contamination, whether or not they are actually responsible for causing the contamination. In Hamilton Beach Brands Canada Inc v Ontario (Environment and Climate Change), 2018 ONSC 5010 (Div Ct) (leave to appeal to ONCA denied), the current owners and tenants of property were held liable for contamination that occurred at the hands of a former tenant decades earlier. As seen in the case of Midwest Properties Ltd v Thordarson, 2015 ONCA 819 (leave to appeal to SCC denied), corporate ownership of a property will not necessarily protect individuals from being held personally liable. Courts are willing to pierce the corporate veil and hold directors and officers liable for environmental contamination pertaining to properties owned by their respective corporations. Furthermore, a government order to remediate a property does not preclude a civil action for damages from owners of neighbouring properties that may be affected by the contamination.

How Can You Protect Yourself?

Before purchasing a commercial property, it is important to thoroughly investigate the history of the property and determine if it is possible that contamination occurred on the property at any time in the past. This may require determining all the previous owners and uses of the property. The Ontario Ministry of the Environment, Conservation and Parks (MECP) should be contacted to determine if there are any records of contamination relating to the property in question. If there are any storage tanks on the property, their history should be investigated. Since 2002, all underground fuel storage tanks must be registered with the Technical Standard Safety Authority, and larger tanks require annual testing. In some cases, it may be necessary to perform a Phase I or even a Phase II Environmental Site Assessment (ESA) to determine if any contamination exists on the property, either above or below the surface or in the groundwater. If there are plans to change the use of a property, the MECP may require that a Record of Site Condition be filed which in turn requires completion of an ESA.

Originally Published By Devry Smith Frank, November 2020

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.