Purchasing Decommissioned Gas Stations

Should you buy that decommissioned gas station? Many old gas stations have been closed over the past several years and many of those stations are located in what appears to be very commercially advantageous locations. Should you pick up the potential deal? The answer is  not as simple as you might hope.

You need to have a very sober look at the terms of the agreement of purchase and sale proposed by the gas company. We have seen a number of these agreements most of which have terms which can be quite frightening.  Further, those terms are generally not negotiable as far as the gas company is concerned.

Please ensure that you have the agreement reviewed by your lawyer before signing. Some agreements will indicate that they are subject to the approval of the purchaser’s lawyer but most agreements do not have such a provision leaving the buyer bound to the agreement terms.  At a minimum, the buyer should have a conditional permitting the buyer to have the environmental status reviewed and the buyer should be permitted to walk away from the purchase if the buyer is not completely satisfied with the results of the review.

It is common for such agreements to be delivered with an environmental report attached. Many buyers are reassured by the provision of the environmental report thinking that the report must indicate that the lands are free and clear of any troublesome contamination.  However, that is not always the case and worse yet, the agreement often provides that the buyer will not be entitled to walk from the deal unless the buyer can show that the report provided by the gas company is in error. In other words, if the report is accurate, the buyer is obliged to close no matter what the accompanying environmental report says about the current condition of the property. It is hard to imagine what it might cost for the buyer to commission a new report showing that the seller provided report is not accurate.

Unless the buyer has an environmental engineering background, the buyer will need to retain a good environmental engineer to interpret the report and to advise as to whether the old gas station site was properly remediated.

In most situations, the report will be delivered to demonstrate that the site has been properly remediated.  However, the buyer will need to have an environmental engineer to confirm whether the site has been remediated to the current standard required by the Ministry of the Environment. Some gas station remediation reports will indicate that as part of the remediation process, that special barriers were installed around the limits of the site before replacing the contaminated soil with clean soil. Why? So that the contamination which has migrated off the site, when the site was originally contaminated will not migrate back onto the site. Why is this a problem? It is a problem because these agreements typically not only leave the buyer responsible for the current condition of the property but they also require the purchaser to save the vendor harmless from any subsequent claims by anyone who may sue over contamination to their lands originating from the subject property. Contaminants migrating off site are apparently common. The neighbouring property owners simply need to demonstrate that the source of the contamination was the property in question and the problem becomes the buyers, as the new owner, to resolve.

Your lawyer and your environmental engineer for a relatively modest investment can assist you in determining whether you may be buying a serious financial problem rather than the anticipated good commercial opportunity.

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