My lands smell funny

by Richard Bereti

Lawyers like chasing down “environmental angles” on their files just about as much as they like chasing tax angles. Whether it’s a corporate or commercial transaction, or a matter dealing directly with real property, clients these days need guidance on lurking environmental issues.

A convenient example is one encountered every day by commercial solicitors: the purchase and sale of land. If there is one thing unwitting purchasers of contaminated land have in common, it is that each wishes they had simply found out before closing that the site was contaminated. There are some obvious steps one can take which will provide insight into that which you simply can’t see.

Responsible Persons (RPs): RPs are defined in the Environmental Management Act (EMA) as current and former owners, operators, producers and transporters connected to a “contaminated site.” They are jointly, severally, retroactively and absolutely liable. The purchaser of contaminated land is a current owner and is potentially responsible for cleaning up the site even having played no role in polluting it.

Innocent Purchasers: However, the EMA and its closest friend, the Contaminated Sites Regulation (CSR), provide some innocent purchasers with an escape route in the form of an exemption found at Section 46 (1)(d) of the EMA and 28 (a) of the CSR. Together, they essentially exempt from liability a purchaser who is not a polluter and, before buying, took all reasonable steps to determine prior owners and uses of the site, and undertook other investigations to minimize their potential liability.

Investigations: With modern technology, ascertaining prior owners and uses can be done in a relatively efficient manner. If the results reveal red flags, such as former automotive repair activities or ownership by an energy company, then further investigations can be undertaken or the purchase abandoned. Risk can also be measured through the testing of soils, search for underground oil tanks and by searching the contaminated sites registry and other public records.

Allocating Risk: Some-times, however, with or without investigating the environmental status of a given site, a purchaser will want to buy real property that carries a degree of environmental risk. One way of addressing this is to propose that the seller either reduce the price or clean up any contamination or potential contamination by a date certain (subject clause or term of agreement).

If the seller is prepared to share “potential” risk, a purchaser may seek an indemnity from the seller which would see the seller receive full price for the property, but would allow the purchaser to, in effect, claw back some of that money if the purchaser is faced with environmental liability in the future. Indemnities can take many forms and are as varied as the circumstances of a given case and the imagination of counsel.

The EMA does not reward risk-takers, but does seek to support business decisions made by those attempting to manage the risks inherent in many corporate, commercial and real property transactions. The EMA does not completely ignore contract or common law, nor does it attempt to strip the court of its equitable bent. Rather, terms such as “just” and “fair” are explicitly used to guide the court in allocating liability amongst RPs.

Client protection in these cases starts with the obvious – and this is often enough. However, when the easy questions reveal an odour, tear it down and let in the light.

Richard Bereti is Chair of Harper Grey LLP’s Environmental Practice Group and Adjunct Professor of environmental law at UBC.

This article was published in the February 2009 issue of BarTalk. © 2009 The Canadian Bar Association. All rights reserved.