Buying Commercial Property: BIG FIVE ways to protect yourself from environmental liability when contamination is discovered

Whether buying a corner store or a large industrial operation, purchasing commercial property can result in nasty surprises. In BC, if you find contamination left by a previous owner, you could be on the hook for the cost to investigate and remediate. Expensive remediation might become necessary if, for example, you want to redevelop the site or if a neighbour complains about dirty groundwater flowing across the property line. These costs may sometimes be recovered from responsible parties, but this process can be uncertain and costly. Rather, the best way to avoid expensive environmental surprises is to protect yourself when buying the property in the first place.

Here are the BIG FIVE things you can do to protect you and your company when buying commercial land:

1. Know the Historical Ownership and Use: Understand the chain of ownership and operatorship. Land that has been residential or farmland for most of its active life carries less risk than land with a gas station, wrecking yard, or drycleaner in its history. A title search will not tell the full story, so you need to examine the history of actual operations, often by historic tenants. Engaging an environmental consultant to conduct a ‘phase 1’ historical review can help you uncover previous operations on the land at a relatively modest cost.

2. Obtain Public Records: Obtain all available public records which relate to any environmental investigations or work done at the site. Request the same from the vendor. If there are piles of technical reports, have an environmental consultant review them and tell you what they mean to you as a potential purchaser, so you know what the problem was and perhaps still is – and if any neighbouring lands are affected.

3. Know your Neighbourhood: Look at the operations in and general character of the neighbourhood. Contamination knows no boundaries. If there are metal shops or mechanics on adjacent lands, contamination beneath the surface could have migrated or be still migrating throughout the neighbourhood. An adjacent river should be noted. Again, an environmental consultant will include a neighbourhood review in their ‘phase 1’.

4. Environmental Testing: Test some soil or groundwater. Yes, this can be done and in some cases should be. Where risks are discovered through initial, less intrusive historical investigation, it may be that your consultant will recommend a ‘phase 2’ investigation that looks past prior uses and into the actual condition of the soil or groundwater. Often the vendor will attempt to protect themselves by inviting the purchaser to carry out their own investigations. You may need to take them up on this, and have your consultant strategically sample the soil and/or groundwater. Information is power when deciding whether to purchase the land or how much to pay for it.

5. Contractual Protections: Finally, where possible, obtain representations from the vendor about the environmental status of the property, and if contamination is known to exist then explicitly set out in the agreement of purchase and sale which party is responsible for what contamination. You might even obtain an indemnity from the vendor for contamination caused before closing. If your conveyancing lawyer is not comfortable with these contractual protections, consult with an environmental lawyer or have your solicitor do so.

The most common defence advanced by vendors of dirty land is: “All the environmental information was there to be discovered, it was not hidden, and we gave you every opportunity to examine the property. Moreover, we promised you nothing”. The way to counter such a defence is to do your due diligence, examine prior uses, and ask for contractual protection from the vendor up front. Use the above BIG FIVE as a guide, and if there is a risk worth exploring, consider speaking with an environmental lawyer and consultant.