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Legal Guide


Overview

While there are no restrictions on allocating civil liability in a real estate transaction involving contaminated land, it is not possible to contract out of regulatory liability. Canada applies a “polluter pays” principle, under which the original landowner that caused the pollution retains potential regulatory liability, even after a property is transferred. While indemnification clauses are frequently used in agreements of purchase and sale, the provisions of a civil contract do not affect this regulatory liability.

Certain provinces have a system in place under which a landowner can clean up a property to designated standards (based on intended land use), have the clean-up approved by the regulator, and in doing so, receive immunity from possible future clean-up orders. Brownfield developers in Canada frequently avail themselves of this system. It should be noted that the immunity does not extend to off-site migration of pollutants.

A claim of civil common-law liability is a remedy available to adjoining landowners harmed by contamination, pursuant to the law of negligence. In the case where a dangerous substance escapes from someone’s property, the law of strict liability provides the adjoining landowner with a remedy.

Lender liability

Lenders can assume environmental liability where they become involved in the financial management of a corporation, the day-to-day operational management thereof, or if they become owners by way of foreclosure. Two provinces, Ontario and British Columbia, currently have statutory exemptions from liability for secured lenders, receivers and owners by foreclosure, for certain designated actions. This protection can be set aside where these parties fail to disclose environmental non-compliance or harm, or where they are grossly negligent in discharging environmental obligations.

Disclosure of known contamination

Depending on the circumstances, land contamination may have to be disclosed by the vendor in a real estate transaction. Canadian law distinguishes between “latent” (hidden) and “patent” (readily observable through reasonable due diligence) defects in land. Where a vendor is aware of a latent defect, it must disclose it to a purchaser prior to closing. There is no similar duty for patent defects on the basis of caveat emptor (“buyer beware”).

As part of most transactional due diligence, purchasers request disclosure of all environmental records in possession of the vendor as a matter of course.

Asbestos

The duties of owners and occupiers, with respect to asbestos on site, are set out in provincial occupational health and safety statutes. There is generally no requirement to remove undisturbed asbestos, including friable asbestos. However, some provinces, like Ontario, require record-keeping with respect to the location of materials above certain thresholds and implementation of risk management plans. Loose friable asbestos has to be removed in all provinces. The precautions required for asbestos removal are extensive and are also set out in specific provincial regulations. Asbestos is also considered a hazardous waste and is subject to special disposal requirements.

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