Post-Purchase Contamination – Who Pays

A vendor of contaminated lands may incur liability to a purchaser for remediation costs incurred where the contamination is not discovered by the purchaser until after the closing of the transaction. What is the vendor’s obligation to disclose to the purchaser previous contamination of which he may be aware and how can the vendor protect himself from incurring future liability for remediation costs?

The Ontario Superior Court recently considered a claim by the purchaser of a former car dealership property for costs of remediating subsurface soil contamination which resulted from leaking underground gasoline storage tanks removed by the vendor prior to the sale. At the time of acquisition of the property by the vendor from the car dealership, he had obtained from the car dealership an environmental audit report indicating that the property was not contaminated. In addition, upon his removal of the underground storage tanks, the vendor had obtained a further report also stating that the property was not contaminated. On the basis of these reports, the vendor had represented to the purchaser that “to the best of my knowledge and belief the property does not contain any contaminants”. However, in the Agreement of Purchase and Sale, the vendor had refused the warranty requested by the purchaser affirming the property as pollution or contaminant free and specifically provided that “the property is purchased ‘as is’ ‘where is’”.

Following purchase of the property, in connection with a proposed refinancing, the purchaser’s bank required a more comprehensive environmental evaluation of the property. In completing this environmental evaluation, the purchaser discovered that significant subsurface gasoline contamination remained on site which exceeded current Ministry of Environment cleanup criteria. The purchaser was required to undertake remediation of the property at a total cost of approximately $67, 000.00. The purchaser sued the vendor to recover these costs.

In rejecting the purchasers claim, the court held that the provision of the two reports by the vendor to the purchaser satisfied the vendor’s obligation to disclose to the purchaser the extent of his knowledge concerning the environmental condition of the property. The court stated:

    “It is significant that…both reports were provided to the purchaser and he was in possession of them before any offer was made.”

    “There is no evidence that (the vendor) was the author of any of the pollution or that he was the de facto owner of any of the pollution, nor is there any evidence that he knew of any pollution.”

    “It is obvious that relying on the two previous reports, he was of the opinion that the site was clean. There is nothing significant in that opinion as basically that was the same opinion formulated by (the purchaser) on the basis of the reports.”

With respect to the purchaser’s assertion that the vendor had an obligation to disclose to the purchaser the latent defect within the property and to repair this defect, the court held:

    “In my view, if there was a defect in the property it was not latent but rather patent. It could have been discovered by due diligence….”

    “All information was provided prior to closing and the plaintiff even took possession in advance of the closing date. The plaintiff cannot rely on their own lack of diligence to fix responsibility upon the defendant.”

    “The request made by the (bank) is indicative of the effort made by corporations in attempting to ascertain the real state of properties with this type of history. If the cost of an initial environmental assessment was $2000.00, it would have been, in the circumstances, money well spent.”

For their own protection, vendors should be cautious when representing the environmental condition of their property and should specify in the Agreement of Purchase and Sale the limitation on their representations. Purchasers, on the other hand, are well advised not only to obtain from the vendor existing reports concerning the environmental condition of the property but to undertake all reasonable additional investigation to satisfy themselves in this regard.

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