Environmental Considerations

In Ontario, the primary statute governing environmental matters is the Environmental Protection Act (the "EPA"), which statute is administered by the provincial Ministry of the Environment (the "MOE").

The EPA provides that no "person responsible" for a source of contamination shall permit the discharge into the natural environment of any contaminant in an amount in excess of that prescribed. A "person responsible" is defined as the owner or the person having the charge, management or control of a source of contaminant. This may include the current or previous owner, a tenant or a mortgagee in possession of a contaminated property.

There is no requirement under the EPA that the person to whom the MOE issues an order requiring the remediation of a contaminated property actually caused the contamination. In other words, the current owner or mortgagee in possession of a contaminated property may be required by the MOE to clean up even if it did not cause the contamination. In Ontario, there is currently no statutory exemption for the "innocent landowner" similar to that available under the U.S. Comprehensive Environmental Response, Compensation and Liability Act or for the "innocent purchaser" under the British Columbia Waste Management Act.

Pursuant to the EPA, the MOE has the authority to issue a variety of orders to prevent or control the discharge of contaminants: stop orders (issued in situations of impending danger); control orders (issued to control ongoing discharges which are causing pollution but not necessarily posing an immediate danger); preventive orders (issued where there is an apprehension that contamination may occur); and clean up orders (issued, as the name implies, where contamination has in fact occurred and remediation is required).

Over and above the duties imposed on a "person responsible" under the EPA, an owner or occupier of contaminated property may be liable for damages of an adjoining landowner where the contamination is found to have migrated onto the adjoining landowner’s property. An action on the part of an adjoining landowner may be based on such common law liability principles as nuisance (any unreasonable interference with the use and enjoyment of property), negligence (lack of reasonable care where damage or injury to others is foreseeable), trespass (the intentional interference with one’s right to the exclusive possession of one’s property), riparian rights (where there has been a "material alteration" of the character or quality of waters), strict liability (resulting from a discharge or escape of a contaminant that is deemed to be "inherently dangerous") or civil action for breach of statute.

The general principle of caveat emptor ("let the buyer beware") applies to purchases of real property in Ontario. For this reason, a prudent purchaser will consider the environmental condition of a property before consummating the transaction. To this general principle, there are four exceptions permitting a purchaser who later discovers property to be contaminated to seek recourse from the vendor:

Misrepresentation. If the vendor represented (whether fraudulently, negligently or innocently) that the property was not contaminated;

Fundamental Breach. If the land was fundamentally different from that for which the purchaser bargained in the purchase agreement;

Failure to Disclose. If the vendor failed to disclose something which he was required to by statute, such as the presence of PCBs or the existence of an underground storage tank; and

Latent Defect. If the vendor failed to disclose a defect of which the vendor was aware and which the purchaser did not know or could not reasonably have discovered.

For a prospective purchaser or mortgagee, the most effective method of minimizing the risk of future environmental liability is environmental due diligence.

Such due diligence would include, (i) reviewing all existing environmental reports, audits, assessments and results of monitoring and testing with respect to the property; (ii) reviewing all environmental permits relating to the property; (iii) determining whether any notices, directives or orders have been issued with respect to the property, whether any environmental approvals, orders, registrations, licences or permits have been issued, or whether the MOE has issued any notices of violation or charges; (iv) commissioning a phase I environmental assessment of the property; and (v) depending on the results and recommendations contained in the phase I assessment, commissioning a phase II environmental assessment.

Environmental representations, warranties and indemnities provided by the vendor/mortgagor may also be useful. The nature, scope and duration of such representations, warranties and indemnities will, of course, depend, on the relative bargaining position of the parties involved and the creditworthiness of the indemnifier.

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.