Canada: New Brownfields Legislation In Ontario - Opportunities And Challenges

On May 17, 2001, the Brownfields Statute Law Amendment Act (Bill 56) received its first reading in the Ontario legislature. Bill 56 contains significant amendments to Ontario's key environmental statutes, the Environmental Protection Act (the "EPA") and the Ontario Water Resources Act (the "OWRA"), as well as amendments to other legislation, including the Municipal Tax Sales Act and the Planning Act. With these amendments, the Ontario government has taken a bold and important step toward encouraging the re-development of brownfield sites in the province.

Brownfields are sites that were used in the past for industrial or commercial purposes and are dormant because they are contaminated or perceived to be contaminated. To the public they are often eyesores. On the balance sheet they are liabilities. Brownfields are also properties with substantial promise - they are often located in serviced areas, and their redevelopment can foster sustainable growth, restrict urban sprawl and generate an enhanced tax base.

In the past decade, numerous American states have developed brownfield programmes - a combination of financial incentives, liability relief and streamlined local approvals procedures designed to encourage brownfields re-development. The concern that prompted these measures is shared by Canadian provincial and local governments - there is a need to stimulate urban renewal, and to facilitate smart and sustainable growth.

In the fall of 2000, the Ontario government announced its commitment to undertake a brownfields policy review. An advisory panel was established to provide advice on policy improvements to encourage voluntary clean-up, by addressing the three main challenges to the redevelopment of contaminated sites - environmental liability, financing and the planning process. After receiving the report of the panel in November, 2000, and consulting with a broad cross-section of stakeholders, the government has tabled Bill 56.

Bill 56 will be subject to extensive further consultation from interested stakeholders. What follows is an overview of its major provisions, which deal principally with site remediation and liability issues. While the legislation is likely to be of significant interest to parties involved in the development of brownfields, it introduces numerous changes that are of interest to anyone who owns, occupies or lends against the security of contaminated sites.

Since 1990, the Ministry of the Environment (the "MOE") has had authority under the EPA and the OWRA to issue various types of administrative orders ("Directors' Orders") to a wide range of targets. These targets include former and current owners, occupants and parties with management or control of real property. Directors' Orders are issued regardless of fault and without a hearing. They can be enforced by a cost recovery order, which can be registered as a judgment of the court.

The fear of potential unlimited liability has stifled the development of sites that may be contaminated, as lenders, municipalities and prospective purchasers have been reluctant to take any steps that could make them responsible for the consequences of historical contamination exceeding the value of their investment. Even site assessment and investigation have been impeded, for fear that such steps may constitute "control". The problem is exacerbated by the absence of regulatory approval or sign-off on completion of remediation.

Bill 56 addresses all of these concerns and introduces a number of critical changes that should lead to greater fairness and predictability in dealing with contaminated lands liability.

The key feature of the legislation is the provision of a liability exemption. Where a property has been remediated to the prescribed contaminant standards for the applicable land use, an owner of the property may file a Record of Site Condition ("RSC") on the Environmental Site Registry, a registry accessible to the public that will contain information respecting the environmental condition of properties. When an owner files an RSC, no orders can be issued by the MOE in relation to that property against the owner, a subsequent owner of the property, or any occupant or person with charge, management or control of the property at the time or after an RSC has been filed.

The exemption does not apply with respect to contamination occurring after the RSC has been filed (new contamination) or with respect to contamination that has migrated from the property to another site (off-site contamination). The exemption is lost if there is a change in use of the property to a more sensitive use, where an environmental emergency arises at the property, or where there has been a contravention of the terms of site specific risk assessment ("SSRA") or stratified clean-up as reflected in the RSC.

Note that Bill 56 provides for "grandfathering" of sites. A party who has received written acknowledgment from the MOE of an RSC under the Guideline for Use at Contaminated Sites in Ontario, 1996 (the "Guideline") will generally be entitled to the same exemption as though the RSC was filed after the legislation came into force, provided that the owner certifies that any requirements prescribed by regulation have been complied with in relation to the property.

Bill 56 provides for the creation of an Environmental Site Registry (the "ESR"). Like many other aspects of the new regime, the details of the ESR, including who will operate it, and what information can be posted, will be prescribed by regulation. The bill however anticipates that the ESR will operate independent of the land registry system and will index information alphabetically by property owner.

The critical document that permits a party to claim exemption from liability is the RSC. Under the current Guideline, parties and their consultants may submit for acknowledgment by the MOE a record of site condition where a property has been remediated using a stratified (rather than full-depth) approach or under an SSRA.

Under Bill 56 the significance, use and content of the RSC, as well as the responsibilities of those who complete them, are greatly expanded. An RSC must be completed by a "qualified person" (to be defined by regulation). It is anticipated that qualified persons will be experienced site assessment and remediation professionals, although the standards for their approval and the role of the MOE in accreditation have not yet been determined.

The RSC will contain a description of the property and its use, the owner's name, the standards applied for the purpose of the RSC, a description of remedial work and the levels of contaminants at the property. The qualified person will also be required to certify the following in respect of the property:

1. a Phase I environmental site assessment ("ESA") has been conducted;
2. a Phase II ESA of the whole property was conducted or is not required by the regulations or in the opinion of the qualified person;
3. if a Phase II ESA was conducted on only part of the property, a Phase II ESA of other parts of the property is not required by the regulations or in the opinion of the qualified person;
4. for the assessed parts of the property, as of the certification date, the property meets the background, full depth or stratified criteria for all contaminants prescribed by regulation, except as specified, and for each excepted contaminant an SSRA was performed and accepted, and the site meets the standards contained in the SSRA; and
5. the RSC contains everything required by the statute and regulations.

Note that, under Bill 56, the filing of an RSC is mandatory in any case where there is a change in land use to a more sensitive use.

Bill 56 provides for regulations to be passed prescribing the criteria for Phase I and Phase II ESAs, to the extent that they are conducted for the purpose of an RSC and the liability exemption. It is anticipated that these criteria will follow CSA International Standards Z768 (Phase I ESAs) and Z769 (Phase II ESAs). Regulations will also provide for the applicable criteria for determining contamination at a property - it is expected that they will incorporate the criteria now contained in the Guideline.

An important aspect of the amendments is the specific requirement that the MOE consider and accept SSRAs in appropriate cases, although the procedures for submission and approval of SSRAs are to be set out in regulations. This should provide greater flexibility for owners and their consultants in the remediation of contaminated sites.

Under the current Guideline, where a property has been remediated using a stratified or SSRA approach, the MOE may issue a certificate of prohibition, providing certain restrictions respecting the future use and maintenance of the property. Under Bill 56 this certificate has been renamed a Certificate of Property Use ("CPU"). The legislation will require mandatory disclosure and in some cases registration against title of CPUs and RSCs. Where an RSC has been filed for a property that has been subject to a stratified clean-up or an SSRA, a copy of the RSC must be registered against title to the property and must be provided by the owner to every person who will acquire an interest in the property; otherwise the transaction is voidable at the instance of the person who was not given the RSC.

Bill 56 provides liability protection for municipalities and lenders for steps taken in relation to the property of taxpayers and borrowers that may be contaminated. The legislation generally incorporates into law the protection that such parties have enjoyed by agreement with the MOE under global lender and municipality agreements. They are entitled to conduct site investigations, to secure and provide services to property and to take preventive measures, without attracting liability for a Director's Order.

Bill 56 provides additional protection to municipalities and lenders who take possession or acquire ownership of contaminated property. A municipality that takes title to a taxpayer's property after an unsuccessful tax sale and a lender who forecloses on property will face potential liability only if an environmental condition results from their gross negligence or wilful misconduct. In each case the exemption lasts for a period of two years only, unless the time period is extended by the MOE.

Other exemptions are provided for trustees and receivers in possession of contaminated property that follow substantially the provisions of the federal Bankruptcy and Insolvency Act.

Bill 56 provides that a person who conducts, completes or confirms an investigation in relation to property is not for that reason alone a potential target of a Director's Order. This provision alleviates concern by prospective purchasers and parties involved in site investigations, extending to them the protection formerly available by agreement to secured lenders and municipalities.

Bill 56 is principally concerned with amendments to the EPA and OWRA respecting contaminated sites liability. The proposed legislation however will introduce amendments to other legislation with the objective of facilitating local funding and financing of site re-development.

In proposed amendments to the Municipal Act, Bill 56 provides for local municipalities to pass by-laws providing for the cancellation of all or a percentage of taxes levied on eligible property during rehabilitation of the property. Owners who intend to rehabilitate property will be able to apply for tax assistance.

Amendments to the Municipal Tax Sales Act will permit municipalities to acquire property if a public tax sale fails to find a purchaser (and enjoy an exemption from liability). If the municipality does not acquire the property within one year after a tax sale, the tax arrears certificate will be deemed to be cancelled, however this would not prevent the registration of a new tax arrears certificate with respect to the land or relieve the taxpayer of the obligation to pay taxes imposed before the sale.

The Planning Act will be amended to enable municipalities to make grants or loans for the purpose of community improvement, with the total of grants, loans and tax relief not exceeding the cost of rehabilitation of the property. Note however that the approval of the Minister of Municipal Affairs and Housing would continue to be required in the case of grants, loans or tax assistance to businesses.

Bill 56 should provide considerable assistance to parties dealing with lands that are or may be contaminated, including owners, developers, lenders and municipalities. There are however significant limitations to the liability protection provided - most importantly, unlike the brownfields legislation of many U.S. jurisdictions, Bill 56 does not protect parties against potential civil liability in respect of contaminated lands, or prevent government action in respect of contamination that has migrated off-site.

Bill 56 creates a form of "sign-off" for qualified sites, however the MOE is reluctant to significantly increase its own role in the process. The absence of explicit MOE approval (except in the case of SSRAs) may continue to create concerns for lenders, municipalities and developers. Under Bill 56, accountability is intended to rest with environmental consultants who are recognized as "qualified persons". The significant additional responsibilities and risks assumed by such parties in the new system will likely impact adversely on the cost and complexity of site investigations.

The liability of parties while they are engaged in the remediation process is uncertain. Bill 56 does not provide for "stand-still" arrangements or any other type of protection from Directors' Orders while a property is being remediated.

Finally, the proposed legislation does not expand significantly on the financial tools that are now available to municipalities to encourage brownfields redevelopment, or, to the disappointment of developers, offer any new sources of funding.

While Bill 56 reflects a serious attempt to overcome some of the impediments to liability for contaminated sites, it remains to be seen whether it will provide a major incentive to brownfields re-development in the province.