The most meaningful way in which a purchaser can protect his or her investment in land is to be aware of all the possible risks related to environmental liability when contemplating the purchase. Establishing the environmental status of the land prior to the completion of a prospective purchase is essential to deciding on an appropriate sales price or whether purchasing the land in question is even worthwhile in the first place.
It is important to bear in mind that the general rule regarding the disclosure of land defects is caveat emptor ("let the buyer beware"). An exception to caveat emptor is fraud or deceit on the part of the vendor.
A number of methods are available to assist a prospective purchaser in identifying and managing the risks related to his or her land purchase decision:
1. Understanding the Vendor's Use of the Land
A total understanding of the manner in which the land was used by the vendor may unveil the current condition of the land and the possible environmental risks. Such an understanding should extend to past ownership of the land, land usage over time, the use of hazardous or toxic substances on the land, the operating practices of the past and current user(s) of the land and waste management practices.
2. Environmental Site Assessment
A site assessment is valuable to the purchaser in deciding whether it should proceed with the purchase, assessing the value of the land and the value of the liabilities associated with that land, obtaining financing, and determining which party should pay for any necessary remediation work. It is in the purchaser's best interest to ensure that a satisfactory site assessment be a necessary condition to proceeding with the purchase transaction.
In Alberta, there is a three phase approach to environmental site assessments. Phase I involves a preliminary inspection carried out by a qualified assessor. This investigation entails a review of background information on the site, a reconstruction of the history of the site, and a preliminary risk assessment.
Phase II is conducted if the results of Phase I indicate a possibility of land contamination. Phase II focuses on testing in order to determine the location and extent of the contamination and to estimate cleanup costs.
Phase III determines the appropriate level of environmental remediation for the intended use of the land and the steps that are necessary to achieve that level. This includes determining the clean-up standards required by regulators and developing a clean-up plan.
The selection of a qualified assessor is crucial to the identification of environmental risks through an environmental site assessment.
3. Environmental Audits
An environmental audit can be effective in assisting a prospective land purchaser to verify its compliance with environmental laws and regulations, to facilitate the obtaining of financing and insurance and to decrease potential liability. As this management tool provides information on the contemplated land as at a specific date, it can serve as a benchmark from which to measure future change.
An auditor can be retained by either the vendor or the purchaser of the land. However, if the audit will be relied upon by the purchaser, it is preferable that the auditor be retained by and act on behalf of the purchaser.
It would be in the best interest of the purchaser to ensure that the purchase agreement gives him or her the ability to refrain from proceeding with the transaction should an unsatisfactory audit result; to require that the vendor undertake remedial work or to adjust the purchase price.
Both the vendor and the purchaser will want to ensure that the audit remains confidential. The purchase agreement should limit the disclosure of the audit and require the auditor to enter into a confidentiality agreement.
Information regarding the environmental status of the land in question may be available from a variety of sources:
i. A search of the Courthouse may reveal any litigation concerning the environmental conditions of the land;
ii. An investigation of licenses and permits may reveal any restrictions on the use of the land;
iii. A land titles search may disclose environmental information regarding the current and previous owners, restrictive use agreements or other encumbrances that may indicate an environmental problem;
iv. The Environmental Law Centre in Alberta provides an Environmental Enforcement Historical Search on a computer database for information related to the purchase, development or financing of land; and
v. Data regarding the soil, water and air emissions may be obtained from the vendor.
Given the inventory of contaminated and potentially contaminated sites in Alberta coupled with public attitudes towards environmental protection, it is essential that all potential land purchasers address environmental concerns before completing a purchase transaction. Environmental risks can be effectively managed by gaining a thorough understanding of the past and current uses of the land, through the use of an environmental site assessment and/or an environmental audit, and by obtaining relevant information through a variety of searches. Although these prepurchase activities may appear costly and time-consuming, the benefits of full knowledge regarding the environmental status of the land may outweigh the burdens.
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.