Canada: Possession Following Mortgage Default And Environmental Liability

Copyright 2008, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on Real Estate Morgage Enforcement, October 2008


As mentioned elsewhere in this bulletin, taking possession of a mortgaged property following default on the part of a borrower is often a key element in a lender's realization strategy. Possession by the lender deprives the borrower of control of the mortgaged property and access to the revenues and income derived therefrom. It also permits the lender to undertake any necessary repairs to the mortgaged property and such measures as may be required to prevent waste, thereby maintaining and maximizing the value of the mortgaged property in both the short and long term.

Environmental Consequences Of Possession

There are necessarily a number of business and legal implications which a lender will have to consider in determining whether or not to take possession of a mortgaged property. Foremost among these is the risk of incurring liability for costs in connection with the remediation or clean-up of any environmental contamination affecting the mortgaged property and any related third party claims. In some instances, the costs of environmental liability may be significant and even exceed the value of the mortgaged property.

In Ontario, a lender's potential liability for cleaning up a contaminated property arises primarily under the provisions of the Environmental Protection Act (Ontario) (the EPA). The EPA grants wide discretion to the Ontario Ministry of the Environment (the MOE) to issue orders for the remediation of contaminated properties to any "person responsible" for the source of a contaminant, regardless of whether such person caused or contributed to the contamination. For purposes of the EPA, a "person responsible" is defined as including not only the owner of the property which is the source of the contaminant, but also the person in occupation or having the "charge, management or control" of such property. In other words, liability for environmental remediation pursuant to the EPA is not related to fault or negligence.

As a practical matter, a lender will need to consider the most appropriate measures to deal with a mortgaged property following default on the part of the borrower without, at the same time, incurring the risk of being deemed to have assumed the "charge, management or control" of the mortgaged property and to have become a "person responsible" and, thus, liable for environmental remediation costs.

Brownfields Legislation – Exemptions for Lenders and their Representatives

Fortunately, the Brownfields Statute Law Amendment Act, 2001 (Ontario) (the Brownfields Legislation) reduces this risk by amending the EPA to provide for certain exemptions for lenders and their representatives – including a receiver, a trustee in bankruptcy and their respective representatives.

As amended by the Brownfields Legislation, the EPA provides that a lender or its representative is not a "person responsible" or a person having the "charge, management or control" of a contaminated property solely by reason of:

1. any action taken for the purpose of conducting, completing or confirming an investigation relating to the mortgaged property;

2. any action taken for the purpose of preserving or protecting the mortgaged property, including any action to:

  1. ensure the supply of water, sewage services, electricity, artificial or natural gas, steam, hot water, heat or maintenance;
  2. secure the mortgaged property by means of locks, gates, fences, security guards or other means;
  3. ensure that the mortgaged property is insured; or
  4. pay taxes due or collect rents owing with respect to the mortgaged property; or

3. any action taken on the mortgaged property for the purpose of responding to:

  1. any danger to the health or safety of any person that results from the presence or discharge of a contaminant;
  2. any impairment of the quality of the natural environment resulting from the presence or discharge of a contaminant on, in or under the mortgaged property; or
  3. any injury or damage or serious risk of any injury or damage to any property or to any plant, animal life resulting from the presence or discharge of a contaminant on, in or under the mortgaged property.

As amended by the Brownfields Legislation, the EPA also provides that a lender and its representatives are not liable under a clean-up order issued by the MOE if the lender becomes the owner of a mortgaged property by virtue of a foreclosure, provided that the lender sells the mortgaged property within a period of five years following the date on which the lender becomes the owner of such property.

The Brownfields Legislation also amended the Ontario Water Resources Act and the Pesticides Act (Ontario) to provide exemptions for lenders and their representatives similar to those now found in the EPA.

Exceptions to the Exemptions for Lenders and their Representatives

As amended by the Brownfields Legislation, the EPA provides for certain exceptions to the exemptions noted above. A lender, receiver, a trustee in bankruptcy and their respective representatives are not immune from liability under an order issued by the MOE by reason of their gross negligence or wilful misconduct. As well, the MOE may – in what are characterized in the EPA as "exceptional circumstances" – issue an order to a lender which becomes the owner of a mortgaged property by virtue of a foreclosure or to a receiver or trustee in bankruptcy if the director of the MOE has reasonable grounds to believe that, as a result of the presence or discharge of a contaminant on, in or under the mortgaged property, there is a danger to the health or safety of any person, impairment or serious risk of impairment to the quality of the natural environment and/or injury or damage or serious risk of injury or damage to any property or to any plant or animal life.

Record of Site Condition

As amended by the Brownfields Legislation, the EPA also provides that the MOE may not issue a clean-up order if a record of site condition – a report prepared by an environmental engineer detailing the environmental condition of a property – has been filed on the MOE's environmental site registry, unless the director of the MOE has reasonable grounds to believe that, as a result of the presence of a contaminant that was on, in or under the property as of the certification date of the record of site condition, there is danger to the health or safety of any person.

Consequently, a lender which takes possession of a mortgaged property will be able to limit its exposure to environmental liability by commissioning and filing with the MOE a record of site condition or, alternatively, by including in the purchase agreement with the purchaser of the mortgaged property a provision requiring the purchaser to do so following completion of the transaction.

Bankruptcy and Insolvency Act (Canada)

At the federal level, the Bankruptcy and Insolvency Act (Canada) (the BIA), provides that, notwithstanding any federal or provincial law, a trustee in bankruptcy is not personally liable, in that position, for any environmental condition arising or environmental damage occurring (a) before the trustee's appointment or (b) after the trustee's appointment unless it is established that such condition arose or such damage occurred as a result of the trustee's gross negligence or wilful misconduct.

Civil Liability

Neither the recent amendments to the EPA and other Ontario statutes resulting from the Brownfields Legislation nor the provisions of the BIA protects the lender which takes possession of a mortgaged property or a trustee in bankruptcy from liability for damages to third parties – to an adjoining landowner, for instance, in circumstances involving the migration of contamination from the mortgaged property. An action on the part of such landowner may be based on such common law principles as: nuisance (any reasonable interference with the use and enjoyment by the adjoining landowner of its property); negligence (lack of reasonable care where damage or injury to others is foreseeable); trespass (intentional interference with the adjoining landowner's right to exclusive use of its property); riparian rights (where there has been a "material alteration" of the character or quality of a body of water); strict liability (resulting from a discharge or escape of a contaminant that is deemed to be "inherently dangerous"); or civil action (arising from breach of statute).


As noted above, existing legislation in Ontario affords a lender which takes possession of a mortgaged property, as well as such lender's representatives (including receivers and trustees in bankruptcy and their respective representatives) certain protection from environmental liability. Also as noted above, at the federal level, the BIA reaffirms such protection in the case of trustees in bankruptcy. However, while fairly broad in scope, such protection is not comprehensive. Accordingly, a lender which intends to take possession of a mortgaged property would be well advised to consider the environmental risks before doing so.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
27 Oct 2016, Seminar, Toronto, Canada

Please join members of the Blakes Commercial Real Estate group as they discuss five key provisions of a commercial real estate purchase agreement that are often the subject of much negotiation but are sometimes misunderstood.

1 Nov 2016, Seminar, Toronto, Canada

What is the emotional culture of your organization?

Every organization and workplace has an emotional culture that can have an impact on everything from employee performance to customer or client satisfaction.

3 Nov 2016, Seminar, Toronto, Canada

Join leading lawyers from the Blakes Pensions, Benefits & Executive Compensation group as they discuss recent updates and legal developments in pension and employee benefits law as well as strategies to identify and minimize common risks.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.