1 Txic Real Estate In British Clumbia: Liability by WALDEMAR BRAUL Barrister & Slicitr edited by ANN HILLYER Barrister & Slicitr Staff Cunsel 1990 West Cast Envirnmental Law Research Fundatin Vancuver, Canada EXECUTIVE SUMMARY This reprt is the secnd f a three part series n txic cntaminatin f land in British Clumbia. Vlume I identifies the key issues invlved. Vlume III sets ut a draft statute n preventin and clean-up f pllutin. Vlume II, this reprt, discusses the main principles gverning liability fr cntaminated land in British Clumbia tday. It is rganized accrding t fur brad areas f liability: the real estate transactin, the develpment prcess, pllutin trts, and statutry liability....this reprt, discusses the main principles gverning liability fr cntaminated land in British Clumbia tday. Chapter One intrduces the subject. Land and buildings -- real estate -- are ``txic'' if they are cntaminated with substances that pse a significant threat t natural ecsystems r t human health and well-being. The reprt fcuses n the legal uncertainties, but the subject is fraught with ther uncertainties as well. Where are the cntaminated sites and hw cntaminated are they? What cnclusins can be drawn frm txicity and ther tests? Can test results be extraplated? What will be the likely effects f shrt-term and lng-term expsure t certain substances? Hw fast will cntaminants break dwn withut interventin and what will be the txicity f the breakdwn prducts? T what extent are ``synergistic'' effects likely? What cnstitutes apprpriate clean-up standards? Types f cntaminatin cmmn in B.C. include industrial sites, cmmunity landfill sites, buildings and facilities cntaining txics such as PCBs r asbests, leaking undergrund strage tanks, and farms r ther areas treated with chemical pesticides and herbicides. Chapter Tw fcuses n liability in the real estate transactin. The main cnclusin f this chapter is that in the absence f express terms in the cntract f purchase and sale the basic rule is caveat emptr -- buyer beware -- subject t traditinal exceptins. But, in the few cases which have prceeded thus far, the curts have sympathized with purchasers wh unwittingly purchase cntaminated prperty. T prvide relief frm the rule f caveat emptr in situatins invlving cntaminated land, the curts cnsider: the dctrine f fraud, where the vendr has deliberately r recklessly failed t disclse material defects;
2 the dctrine f errr in substantialibus, where the vendr makes an inncent but imprtant misrepresentatin abut a prblem with the prperty; and the trt dctrine f negligence, which may apply where a vendr/develper acts unreasnably while selling defective new hmes. Hwever, caveat emptr is still the basic rule and purchasers shuld take precautins t avid prblems rather than relying n pssible legal remedies. Bth purchasers and vendrs shuld cnsider making investigatins prir t a transactin. They shuld carefully structure the agreement t clarify the respective respnsibilities fr ptential r actual cntaminatin prblems. Drafting warranties and representatins is a critical step, and if there may be a cntaminatin prblem a lawyer shuld be cnsulted....caveat emptr is still the basic rule and purchasers shuld take precautins t avid prblems rather than relying n pssible legal remedies. Real estate agents are in a particularly vulnerable psitin at the centre f a real estate transactin. They we duties t their principals -- typically the vendr -- in bth cntract law and the law f agency. They are als bund by the law f negligent misrepresentatin regarding statements which may be relied upn by third parties, such as prspective purchasers r lenders. Als, a realtr's emplyer may be vicariusly liable fr the realtr's fraud r negligent misrepresentatin. A summary f cnsideratins fr realtrs is set ut in Figure 1. In additin t realtrs, a variety f ther parties culd be drawn int litigatin arising frm a transactin invlving cntaminated real estate: lawyers, envirnmental cnsultants, land assessrs, lending institutins and receivers. Chapter Three examines liability issues in the cntext f develpment r redevelpment f real estate. Municipalities in British Clumbia generally are respnsible fr regulating the develpment f land. While prvincial legislatin sets ut municipal pwers fr a number f land use planning matters, it is silent n municipal regulatin f cntaminated land. While prvincial legislatin sets ut municipal pwers fr a number f land use planning matters, it is silent n municipal regulatin f cntaminated land. In respnse t this uncertainty, municipalities have established an ad hc prcedure f referring develpment applicatins t the Waste Management Branch f the B.C. Ministry f Envirnment fr review. The Waste Management Branch, in turn, relies n tw surces t assess cntaminatin: the Pacific Place Standards, and the Special Waste Regulatin under the Waste Management Act. Bth surces are far frm ideal. The Pacific Place Standards serve nly as guidelines, and thus have n legal frce. Mrever, the Pacific Place prvisins must be adapted t ther cnditins, which are highly variable. This leaves wners and develpers uncertain as t the necessary degree f clean-up -- and cst -- until the cnclusin f negtiatins with the Branch. The Special Waste Regulatin is nt designed t deal with histrically cntaminated sites and, therefre, has limited applicatin as a guide fr the clean-up f these sites. These uncertainties take n cnsiderable imprtance given the ptentially enrmus csts f cleaning up cntaminated sites. In additin, Chapter Three cvers three key liability issues that arise in the develpment prcess. It cncludes that: Whether municipalities r the prvincial gvernment can be held liable fr negligent assessment f a cntaminatin prblem depends n whether a curt wuld characterize the errr in questin as a plicy decisin r an peratinal decisin. But this distinctin is difficult t predict in
3 advance, and municipalities and gvernment agencies shuld exercise prudence by assuming that any decisin r actin culd attract liability if it is negligent. Whether develpers r thers are legally bligated t meet clean-up standards set by the Waste Management Branch based n the Pacific Place Standards is nt beynd dubt, because these Standards are merely internal gvernment guidelines and have n specific legislative basis. Municipalities generally lack statutry authrity t require develpers t meet particular requirements in relatin t ptential cntaminatin prblems. But, as a practical matter, municipalities are nt bligated -- except regarding building permits -- t apprve an applicatin where the develper ignres r challenges these prcedures. Nevertheless, the rle f municipalities in dealing with cntaminated land prblems shuld be clarified by legislatin. Whether municipalities have a duty t disclse infrmatin in their pssessin abut cntaminatin prblems depends n the situatin. There is n general prvincial ``Access t Infrmatin Act'' in B.C. Nr is there a general bligatin t disclse infrmatin impsed by the Municipal Act. Hwever, where a municipality respnds t a request fr infrmatin -- as municipalities rutinely d -- it may be held liable fr damages caused by its negligent failure t prvide cmplete infrmatin. Mrever, a municipality ften has a duty t disclse infrmatin relevant t a statutrily-required hearing r meeting. Chapter Fur discusses s-called pllutin trts. A trt is a wrng dne by ne party t anther, which gives rise t a right t sue fr damages, an injunctin r ther judicial relief. The cmmn law f trt is a critically imprtant surce f remedies fr victims f cntaminatin, because the relevant prvincial and federal statutes d nt prvide a cmprehensive regime fr dealing with the liability issues. The key trts are private nuisance, negligence and the principle f Rylands v. Fletcher. Despite its imprtance, trt law cntains numerus inherent limitatins. Establishing causatin -- that the defendant caused the harm t the plaintiff -- is ften the mst difficult prblem fr plaintiffs. The cmmn law f trt is a critically imprtant surce f remedies fr victims f cntaminatin... Chapter Five examines pllutin statutes in relatin t cntaminated land in B.C. Bth prvincial and federal statutes are in frce, but they fcus n n-ging surces f pllutin rather than cntaminatin which has already ccurred. Bth prvincial and federal statutes...fcus n n-ging surces f pllutin rather than cntaminatin which has already ccurred. The prvincial gvernment's authrity t require a persn t clean up a cntaminated site, under sectin 22 f the Waste Management Act, definitely applies t persns wh caused the pllutin n r after April 6, But there is sme dubt that it applies t persns whse plluting activity ccurred prir t that date. When a persn attempts t have land apprved fr develpment, ptential cntaminatin prblems are addressed thrugh the prcedures discussed in Chapter Three. But where land is nt slated fr redevelpment there are sme prblems with the statutry requirements fr clean-ups. One is that the Ministry f Envirnment lacks the pwer t require a persn t prvide infrmatin r t investigate where the Ministry suspects there is a cntaminatin prblem but lacks ``reasnable grunds'' t be satisfied that there is pllutin -- the trigger fr the Ministry's pwer t rder a clean-up. A secnd prblem is that the Waste Management Act allws the Ministry t require multiple parties t clean up a cntaminated site, but des nt cntain prvisins fr allcating their respective shares f the cst. Nr des the Act allw the Ministry t recver its csts where it takes measures in place f a party which has failed t cmply with a clean-up rder. Anther prblem is that generally speaking the legislatin restricts reprting requirements t ``special wastes'' -- the mst hazardus substances -- and des nt require reprting f the existence f ther cntaminants that are less hazardus but nevertheless may cause prblems. Lastly, the pllutin legislatin applicable in B.C. -- bth prvincial and federal -- includes prvisins impsing liability fr ffences n a brad range f parties wh allw r cntribute t an ffence. Hwever, the Ministry f
4 Envirnment's pwer t issue a clean-up rder under the Waste Management Act was held nt t apply t a landlrd wh was inncent and unaware f plluting activities by its tenant. Clean-up peratins are gverned by tw regimes. The Special Waste Regulatin under the Waste Management Act prvides detailed standards gverning strage and dispsal f waste that meet the criteria fr special wastes. Clean-up f cntaminated land is als cvered by the general requirement in the Waste Management Act t btain a permit t dispse f waste. Tw key defences t charges under prvincial r federal pllutin legislatin in B.C. are `due diligence' and `fficially induced errr.' The statutes expressly prvide that it is a defence t a charge if the accused persn tk reasnable care -- due diligence, r similar wrding -- t prevent the ccurrence f the ffence. A defence may als be available where an accused persn reasnably relied upn the errneus legal pinin r advice f an fficial. Chapter Six sets ut cnclusins. Liability fr cntaminated land in B.C. stems frm cntract law, trt law and statute law. A wide range f parties may be liable, and the law is characterized by a relatively high degree f uncertainty. Awareness f ptential cntaminatin prblems is the single mst imprtant defence against incurring liability. The law itself is in flux. Bth the case law and the legislatin are expected t develp rapidly in the near future. Awareness f ptential cntaminatin prblems is the single mst imprtant defence against incurring liability. [ WCEL Hme ] [ WCEL Publicatins ] [ Search the WCEL Library ] ACKNOWLEDGMENTS Many individuals helped in the preparatin f this study. I wuld like t thank the fllwing peple with whm I cnsulted in the curse f my research: Rger Cttn, Mackenzie, Stitt & Baker; Ian Dennis, Mntreal Trust; Dennis Dyle, B.C. Ministry f Attrney General; Mari D. Faieta, Ontari Envirnmental Cmpensatin Crpratin; T.W. Fte, Envirnment Canada; Camern Gray, City f Vancuver; Lynne B. Huestis, Swintn & C.; Mrris Ilyniak, Ontari Ministry f the Envirnment; Anthny P. Kafun, Ontari Real Estate Fundatin; Peter Kenward, Nrman Rankin, and Duglas Thmpsn, all f McCarthy & Tetrault; Victr Krueger, Public Wrks Canada; Rss A. MacFarlane and Knrad J. Liegel, bth f Prestn, Thrgrimsn, Shidler, Gates & Ellis; Graham Rempe and Jhn Swaigen, Municipality f Metrplitan Trnt; Terry Seibld, Owen Bird; Dnna S.K. Shier, Willms & Shier; Hwie Thmas, Thmpsn McCnnell; Dr. Jhn Wiens, B.C. Ministry f Envirnment; Patricia Wilsn, Reginal Municipality f Ottawa-Carletn. The authr is indebted t the staff at the WCELRF, particularly: Ann Hillyer, William J. Andrews, and Calvin Sandbrn, fr their cgent cmments and editing; Julienne Hills, Mrgan Ashbridge, Christine Rberge, and Catherine Ludgate fr cpy editing and wrd prcessing; Christine Lundberg fr administrative supprt; and Patrick Ry fr desk-tp publishing and cmputer prgramming. I wuld als like t give special thanks t Jim Russell with whm I shared respnsibility fr this three-part Txic Real Estate prject. Thanks als t Dn Mnet fr his excellent graphics. The study was funded by the Real Estate Fundatin f British Clumbia. Special thanks are wed t Tim Pringle, Executive Directr f the Real Estate Fundatin, fr encuragement and directin. I am als pleased t acknwledge that the Law Fundatin f British Clumbia prvides cre funding fr the WCELRF. The authr takes full respnsibility fr any errrs and missins in the material.
5 [ WCEL Hme ] [ WCEL Publicatins ] [ Search the WCEL Library ] PREFACE The West Cast Envirnmental Law Research Fundatin (WCELRF) is a nn-prfit, charitable sciety devted t legal research and educatin aimed at prtectin f the envirnment and prmtin f public participatin in envirnmental decisin-making. It perates in cnjunctin with the West Cast Envirnmental Law Assciatin (WCELA), which prvides legal services t cncerned members f the public fr the same tw purpses. Since the funding f the WCELA in 1974, bth rganizatins have dealt with txic cntaminatin issues n innumerable ccasins. The prblem is nt new. What is new is the widespread cncern abut txic cntaminatin amng the general public, in business and in gvernment. This cncern reflects sciety's rapidly expanding envirnmental awareness, as well as a grwing recgnitin f the ptentially enrmus financial csts f failing t prperly handle ur txic waste. The failure t prperly handle txic waste is vividly shwn at the Exp '86 site: decades f plluting industries have left a legacy f cntaminatin which will require millins f dllars t clean up. Many ther sites have als been fund t be cntaminated frm imprper dispsal f hazardus substances. WCELRF has in recent mnths addressed the issues f txic cntaminatin f land and buildings. In September 1989, WCELRF published Txic Real Estate in British Clumbia: Identificatin f Issues, the first reprt in a series f three. This first reprt identified as a majr cncern the general questin f ``wh pays?'' It als nted the glaring absence f legislatin t cmprehensively deal with the prblems f histrically cntaminated prperty. It was beynd the scpe f that first reprt t assess these issues in any depth. This reprt, the secnd f the series, fcuses n liability fr cleaning up the txic cntaminatin f land and buildings. It is nt intended t be a cmprehensive, technical legal dcument. Rather, the intent f this reprt is t present the salient issues and principles f liability in a readable, laypersn's frmat. It is intended t be an educatinal resurce fr persns interested in cntaminated land r buildings, r fr persns wh are lking fr slutins t cntaminatin prblems. This reprt, it is hped, will make readers mre aware f the specific steps they might take t prtect themselves against liability and will allw readers t identify the parties wh may be respnsible fr cleaning up a cntaminatin prblem. The third vlume f this series, Txic Real Estate in British Clumbia: Draft Statute fr Discussin, will present a draft mdel statute t prmte discussin regarding law refrm issues. It will be published in July, The B.C. gvernment recently annunced that it intends t pass legislatin dealing with cntaminated land prblems. Such legislatin has nt yet been tabled. It is hped, hwever, that the three reprts in this series will serve as a basis fr cnstructive discussin f this issue. The views expressed in this reprt are thse f the authr alne. Finally, readers are reminded that this reprt is educatinal and des nt cnstitute legal advice. Readers cncerned abut liability in a particular situatin are urged t seek legal advice frm a lawyer. Waldemar Braul Vancuver, June 1990 [ WCEL Hme ] [ WCEL Publicatins ] [ Search the WCEL Library ]
6 Chapter 1 - INTRODUCTION 1.1 THE TYPES OF LIABILITY Txic Real Estate in British Clumbia: Identificatin f Issues, published in September 1989, identified numerus grwing cncerns abut the txic cntaminatin f land and buildings in British Clumbia. The central questin raised in that reprt was straightfrward: ``Wh must take the steps -- and pay the bills -- t clean up the cntaminatin?'' [(1) W. Braul, J. Russell and W.J. Andrews, Txic Real Estate in British Clumbia: Identificatin f Issues, West Cast Envirnmental Law Research Fundatin, Vancuver, 1989, at p. 2.] Hwever, the reprt cncluded that, ``Numerus cmplex legal principles gvern liability fr cleaning up txic real estate.'' [(2) Ibid., at p. 25.] This reprt examines thse principles f liability in greater depth. It identifies the majr areas f ptential liability in rder t prmte the preventin f liability and t help reduce the uncertainty surrunding this tpic. We trust that this will result in greater remedial actin t clean up cntaminated land. Numerus cmplex legal principles gvern liability fr cleaning up txic real estate. This reprt analyses fur main areas where liability fr cleaning up cntaminated land may arise: during the real estate transactin; during the redevelpment prcess; where neighburs r subsequent wners f cntaminated real estate take actin; and where certain prvisins f pllutin statutes apply. Chapter Tw discusses hw liability arises in the real estate transactin. Exceptins t the traditinal rule f ``buyer beware'' (r caveat emptr) ften apply in the sale f cntaminated prperty. Mrever, ptential liability is nt limited t the vendr f cntaminated prperty -- it als can extend t the realtr, appraiser, envirnmental cnsultant, lawyer, and lender. Chapter Three examines hw liability fr clean-up csts may arise during the redevelpment prcess. It describes a recently-instituted prcedure in which municipalities and the British Clumbia Ministry f Envirnment require assessments and clean-ups f cntaminated sites by prspective develpers. This chapter fcuses n three issues arising frm the new prcedure: whether there is adequate statutry authrity fr municipalities and the prvincial gvernment t require that develpers cnduct assessments and clean-ups; whether municipalities and the prvincial gvernment can be held liable fr negligent assessment f cntaminatin; and whether municipalities must disclse infrmatin respecting cntaminatin. Chapter Fur fcuses n hw victims f cntaminatin can use the cmmn law f trt t sue the wners and ccupiers f plluting prperty. Fr instance, persns suffering leachate pllutin frm neighburing cntaminated land increasingly will lk t trt law fr remedies, given the high csts f clean-up. Als, current wners f cntaminated land may seek trt remedies against frmer wners. Chapter Five discusses the applicatin f pllutin statutes and, in particular, the retractive effect f sectins authrizing the prvincial gvernment t rder clean-ups, the requirements gverning clean-up peratins, and sme f the defences available t persns charged with pllutin ffences. Again, ptential liability extends nt nly t current plluters but als t past plluters and current and past wners, ccupiers and thers, including lenders, wh exercised cntrl r management f cntaminated land and buildings.
7 ...ptential liability extends nt nly t current plluters but als t past plluters and current and past wners, ccupiers and thers, including lenders, wh exercised cntrl r management f cntaminated land and buildings. Chapter Tw thrugh Chapter Five illustrate that substantial areas f uncertainty exist in the law gverning liability. Such legal uncertainty is nt entirely surprising. Issues cncerning txic cntaminatin f land have nly recently caught the attentin f the public and legislatrs. During the past decade, Lve Canal, the Exp '86 site cntaminatin, and the Saint-Basile-le-Grand PCB fire have made the public aware f the prblems assciated with txic cntaminatin f land. Hwever, many f the issues related t legal liability in this area have nt yet been settled. [(3) A draft mdel statute t prmte discussin regarding law refrm issues will be presented in Txic Real Estate in British Clumbia: Draft Statute fr Discussin, the third vlume f the Txic Real Estate series.] The remainder f Chapter One includes, as backgrund, a discussin f issues related t txic cntaminatin f land, such as the cncept f txicity and the prblem f uncertainty. It als identifies a number f different types f cntaminated sites. [(4) These subjects are treated mre thrughly in Txic Real Estate in British Clumbia: Identificatin f Issues, supra, nte 1.] 1.2 WHEN IS REAL ESTATE ``TOXIC''? Real estate, cmprising land and buildings, is ``txic'' if it is cntaminated with substances that pse a significant threat t natural ecsystems r t human health and well-being. Cmmn cntaminants f land and buildings include heavy metals such as chrmium, lead and arsenic; industrial pllutants such as plycyclic armatic hydrcarbns (PAHs) and pentachlrphenls (PCPs); and prducts such as plychlrinated byphenls (PCBs) and asbests. These and many ther cntaminants are cnsidered txic substances, that is, substances which cause ``temprary r permanent adverse effects in living rganisms r their ffspring, such as behaviural abnrmalities, cancer, genetic mutatin and physilgical r reprductive malfunctins.'' [(5) P. Muldn and M. Vallente, Txic Water Pllutin in Canada: Regulatry Principles fr Reductin and Eliminatin, The Canadian Institute f Resurces Law, Calgary, 1989, at p. 10.] Real estate... is ``txic'' if it is cntaminated with substances that pse a significant threat t natural ecsystems r t human health and well-being. 1.3 THE PROBLEM OF UNCERTAINTY In additin t the prblem f legal uncertainty, there are several ther unanswered questins in relatin t txic cntaminatin f land. Where are the cntaminated sites and hw cntaminated are they? T date, n ne has undertaken a cmprehensive study dcumenting the extent and degree f cntaminatin f land and buildings in British Clumbia. N agency r public bdy has cmpiled an inventry f cntaminated sites, althugh the Prvince has cmpleted an inventry f PCB strage sites. [(6) ``British Clumbia Inventry f PCB Waste in Strage'', June 26, 1989 (B.C. Ministry f Envirnment).] Mrever, there is n central registry r data bank which cmpiles the infrmatin that des exist. [(7) Cmpiling a cmprehensive list f cntaminated sites wuld be difficult, especially fr ld industrial sites, given that gvernment cncern fr clse mnitring f pllutin discharges has arisen nly in the past tw decades. ] What cnclusins can be drawn frm txicity tests?
8 There is ften sharp scientific debate ver the validity f tests f the txic effects f a particular cntaminant. In additin, while mre studies d nt always result in greater cnsensus, the resurces cmmitted t the prductin f new chemicals have far utstripped the resurces allcated fr testing their envirnmental and health effects. [(8) S. Epstein, The Plitics f Cancer, rev. ed., Anchr Press/Dubleday, New Yrk, 1979, at p. 27. In 1979, Epstein estimated that 700 new chemicals were being added annually t the 55,000 chemicals already in use in Nrth America.]... the resurces cmmitted t the prductin f new chemicals have far utstripped the resurces allcated fr testing their envirnmental and health effects. Can test results be extraplated? Debate als arises abut whether tests f a cntaminant n certain species at certain cncentratins can be used t draw cnclusins abut the likely effect f the cntaminant at ther cncentratins and n ther species. What will be the likely effects f shrt-term and lng-term expsure t certain substances? The adverse effects f many txic substances n humans r ther species, especially at the levels ften fund in plluted sil, may nt appear fr decades after expsure. This makes it exceedingly difficult t reach definitive cnclusins abut cause-and-effect relatinships. Hw fast will cntaminants break dwn withut interventin, and what will be the txicity f the breakdwn prducts? The rate at which cntaminants break dwn varies cnsiderably, depending n bth the particular cntaminants and n envirnmental cnditins. With the limited state f ur current knwledge, these cmplex prcesses ften defy predictin. Equally prblematic is the determinatin f the pssible txicity f the prducts which result frm the breakdwns. T what extent are ``synergistic'' effects likely? In many situatins, substances that interact with each ther prduce a ttal txic effect which is greater than the sum f the effects f the individual substances acting independently. Therefre, it can be very difficult t determine the actual txic effect where a site is cntaminated, as is frequently the case, with mre than ne substance. Hw clean is clean? There is cnsiderable debate ver what cnstitutes apprpriate clean-up standards. Determining these standards invlves difficult decisins regarding the level f risk t human health and the envirnment that is acceptable, as well as difficult decisins regarding the allcatin f scarce resurces. There is cnsiderable debate ver what cnstitutes apprpriate clean-up standards. 1.4 TYPES OF CONTAMINATION Industrial Sites During the past century, industrial peratins in British Clumbia have used and discharged int the envirnment a large number f chemical substances. It was a cmmn industrial practice t bury waste in a vacant prtin f an industrial site, t discharge waste int a ditch r a nearby waterbdy, r t leave it
9 at a lcal dump. Prspective purchasers f land that is r may have been used fr industry r as a dump shuld be aware that studies f such sites in British Clumbia have detected ptentially dangerus substances such as PCBs, phenls, creste, chrmium, cpper, heavy metals, arsenic, chemicals used fr treating wd, ntably PCPs and ther chlrinated phenls and PAHs. [(9) T.S. Spearing and Assciates, Study f Inactive and Active Waste Dispsal Sites at Federal Facilities in British Clumbia, prepared fr Envirnment Canada, 1984; C.L. Garrett, Arsenic: Chemicals in the Envirnment, Envirnment Canada, 1988, at p. 16, nting a study cnducted in 1986; C.L. Garrett, Chlrphenls: Chemicals in the Envirnment, Envirnment Canada, 1988, at pp ; C.L. Garrett, Txic Chemicals Prfile: Summary Reprt, Envirnment Canada, 1982.] Hwever, there is little data n hw many industrial sites in British Clumbia are cntaminated and the degree f cntaminatin n thse sites. One study identified as ``cncerns'' mercury emissins frm a Kamlps smelter, fluride and PAH emissins frm the Kitimat smelter, and heavy metal releases frm the Trail smelter. [(10) Garrett, Txic Chemicals Prfile, Ibid.] Anther study identified cyanide and mercury releases in cnnectin with gld mining peratins in British Clumbia. In the Trail area, arsenic levels in the sil have been fund t exceed the federal health limits. [(11) Garrett, Arsenic: Chemicals in the Envirnment, supra, nte 9.] Very high arsenic levels als have been fund in sils in the vicinity f tw abandned mine sites in the Yukn. [(12) Ibid.]...there is little data n hw many industrial sites in British Clumbia are cntaminated and the degree f cntaminatin n thse sites. In recent years scientists have discvered dixins and furans in waters near British Clumbia pulp mills. [(13) Department f Fisheries and Oceans, Backgrunder: Crab, Prawn and Shrimp Fishery Clsures, December 1, 1988; Health and Welfare Canada, Health Prtectin Branch, Backgrunder t Health Hazard Assessment f Dixins and Furans in Fish Sampled in Varius Lcatins in British Clumbia, May 19, 1989; Envirnment Canada, Pacific Regin Pulp and Paper Industry Effluent Annual Summary, 1987; Department f Fisheries and Oceans, Natinal Dixin/Furan Fish Sampling Prgram: Additinal Salmn Infrmatin, Ottawa, May 19, 1989; F.T.S. Mah et al., Dixins and Furans in Sediment and Fish frm the Vicinity f Ten Inland Pulp Mills in British Clumbia, Inland Waters Directrate, Pacific and Yukn Regin, Envirnment Canada, 1989.] This raises the pssibility that further cntaminatin may arise when sludge frm pulp mill treatment facilities is burned, dispsed f in a landfill site, r used as fertilizer Cmmunity Landfill Sites Frmer landfill sites cntain a wide array f hazardus wastes. [(14) MacLaren Engineers, Waste Reductin and Recycling in the GVRD: A Blueprint fr Cmprehensive Resurce Management, Vancuver, 1989.] If adequate measures are nt taken t secure a landfill site, sner r later cntaminants will leach int surface and grundwaters. Landfill sites, nce ``capped'', can becme very attractive fr develpment, including residential develpment. But experience shws that these sites are lng-lasting surces f pllutants such as methane gas Txic Buildings and Facilities Plychlrinated biphenyls (PCBs) have been used extensively in buildings and facilities, primarily as clants in electrical systems. [(15) Fr a review f PCBs in the British Clumbia cntext see C.L. Garrett, Plychlrinated Biphenyls (PCBs): Chemicals in the Envirnment, Envirnment Canada, Garrett ntes a number f data limitatins but finds that high PCB levels have been fund near certain industrial facilities, prbably due t leaks r spills frm electrical r hydraulic equipment cntaining PCBs.] PCBs were banned in new installatins in the late 1970s but the remval f existing PCBs is prceeding slwly. The mst serius prblem assciated with PCBs arises when they are invlved in a fire, since uncntrlled cmbustin f PCBs prduces the much mre dangerus dixins and furans. As buildings and facilities age, the ptential threat f fire increases. [(16) British Clumbia des nt
10 have a treatment facility which culd destry PCBs, except at very lw levels f cncentratin. This issue is discussed in greater detail in Txic Real Estate In British Clumbia: Identificatin f Issues, supra, nte 1.] Until recently, PCBs were shipped frm British Clumbia t facilities in ther prvinces and cuntries fr dispsal. Increasingly, these facilities d nt accept PCBs frm utside their brders. As lng as asbests remains in an undisturbed state it is nly a ptential threat. Asbests pses anther serius prblem in buildings and facilities. Due t its high resistance t heat and electricity, asbests has been applied in a wide variety f uses such as insulatin fr electrical wiring, ht pipes, and furnaces and in the manufacture f theater curtains, residential siding, and acustical plaster. As lng as asbests remains in an undisturbed state it is nly a ptential threat. Hwever, when asbests breaks dwn it frms a dust f tiny fibres in the air which can adhere t mist lung tissues, causing diseases such as asbestsis, lung cancer and mesthelema. Litigatin in the United States has resulted in a dramatic decrease in the value f prperty cntaminated with asbests. [(17) Industrial Unin Department, AFL-CIO v. Hdgsn, 499 F. 2d 467 (1974); Reserve Mining C. v. EPA, 514 F. 2d 492 (8th Cir. 1975).] It is nt uncmmn t see real estate advertisements in the United States prmting ``asbestsfree'' buildings. [(18) W. Glenn, D. Shier, K. Sissn and J. Willms, Txic Real Estate Manual, Crpus Infrmatin Services, Dn Mills, 1988, at p. 90.] Leaking Undergrund Strage Tanks Undergrund strage tanks represent anther majr surce f sil cntaminatin. [(19) Assciatin f Prfessinal Engineers f British Clumbia, Cntrl f Leaking Undergrund Strage Tanks, Brief t the British Clumbia Gvernment, September 1989.] Many tanks, especially thse installed befre the mid- 1970s, were cnstructed with little prtectin against crrsin and tank failure. Dealing with an undergrund tank is a very cstly undertaking. Simple remval f an undergrund tank may cst in the range f $10,000, but remval f a tank which is leaking and remediating the plluted sil r grundwater can cst much mre Other Surces f Cntaminatin There are a variety f ther surces f cntaminatin f land. Pesticide and herbicide use may lead t cntaminatin f land. Imprper dispsal f such chemicals may taint the sil r, as fund in Ontari studies, the use and dispsal f cmmnly-used chemicals such as the pesticide atrazine can pllute grundwater. [(20) Greenprint fr Canada Cmmittee, Greenprint fr Canada, Ottawa, 1989, at p. 10.] In additin, intensive pesticide and herbicide use can destry micr-rganisms in the sil, rendering it less fertile, and cntribute t sil ersin. Other ptential surces f txic cntaminatin f land include urban strmwater runff and the lng-range transprt f airbrne pllutants, which causes, fr example, acid precipitatin. [ WCEL Hme ] [ WCEL Publicatins ] [ Search the WCEL Library ] Chapter 2 - THE REAL ESTATE TRANSACTION 2.1 LIABILITY OF THE VENDOR Caveat Emptr The fundamental legal basis fr assessing liability in real estate transactins is the cntract f purchase and sale. Fr example, the purchaser can prtect him r herself by including in the cntract f purchase
11 and sale express representatins and warranties abut the quality and cnditin f the subject prperty. Hwever, where the cntract is silent abut a cntentius issue, the curts apply the cmmn law rule f caveat emptr r ``buyer beware.'' [(21) Prfessr Bra Laskin, as he then was, stated that the harsh effects f caveat emptr are nt mitigated fr the purchaser even where the prperty is ``dilapidated, bug-infested r therwise uninhabitable r deficient in expected amenities, unless he prtects himself by cntract terms.'' See ``Defects f Title and Quality'', Caveat Emptr and the Vendr's Duty f Disclsure, Special Lectures, Law Sciety f Upper Canada, 1960, at p. 389.] Under this rule, the purchaser takes the risk f the quality and cnditin f the subject prperty. Hwever, where the cntract is silent abut a cntentius issue, the curts apply the cmmn law rule f caveat emptr r ``buyer beware.'' Traditinally, caveat emptr has had harsh cnsequences fr the purchaser: [(22) Geiger v. Ppwich,  O.W.N. 287, at p. 288.] [A] purchaser must frm his wn judgement.... [There] is n bligatin upn a vendr t disclse all knwn facts which may be material t the purchaser's judgement... (emphasis added). Under the caveat emptr rule, the vendr des nt have a duty t disclse defects which are nt patently bvius befre r at the time f sale. [(23) Halsbury's Laws f England, Viscunt Simnds, R. Hn., Editr in Chief, 3rd ed., Vl.34, Butterwrths, Lndn, 1960, at p ] While caveat emptr is the general rule, it has always been subject t certain exceptins. Especially in the past decade, curts have increasingly used these exceptins -- which cme frm bth cntract law and trt law [(24) Althugh theretically trt law and cntract law are quite separate, the curts in many f the cases discussed here d nt expressly state precisely which branch f the law the curts are relying n.] -- t prvide relief fr purchasers wh unwittingly have purchased cntaminated prperty. The main exceptins are discussed belw The Dctrine f Fraud Caveat emptr des nt apply where the vendr is fund t be fraudulent. [(25) E.A. Suderman, ``Fraud'', Real Estate Litigatin , The Cntinuing Legal Educatin Sciety f British Clumbia, Vancuver, 1987.] ``Fraud'' is an ``elastic cncept.'' [(26) Laskin, supra, nte 1.] It applies t situatins where the vendr used deliberate ill-intent t deceive the purchaser and als t situatins where the vendr shwed a reckless disregard fr accuracy [(27) Suderman, supra, nte 5.] r a lack f candr. [(28) Tuttahs and Tuttahs v. Maciak and Maciak (1980), 6 Man. R. (2d) 52 (Q.B.).] The dctrine f fraud, especially in recent cases, has becme an imprtant surce f relief fr purchasers f prperty with undisclsed envirnmental prblems. In a leading case, McGrath v. MacLean et al. [(29) McGrath v. MacLean et al. (1979), 95 D.L.R. (3d) 144 (Ont. C.A.), at p ], the curt stated the general principle that a vendr must disclse a knwn material defect which is dangerus r is likely t be dangerus. [(30) See als J.V. DiCastri, The Law f Vendr and Purchaser, Carswell, 3rd ed., Trnt, 1989, at para. 239.] The fllwing cases illustrate this principle: The dctrine f fraud... has becme an imprtant surce f relief fr purchasers f prperty with undisclsed envirnmental prblems. Sevidal v. Chpra [(31) Sevidal v. Chpra et al. (1987), 64 O.R. (2d) 169 (Ont. H.C.). This case dealt with a subdivisin which was cntaminated with radiactive sil in the 1940s, a fact which was knwn t federal fficials. The curt fund that the vendrs, the purchasers' real estate agents, and the Atmic Energy Cntrl Bard had a duty t disclse this material defect t the purchasers. The defendants were fund liable fr the damages suffered by the purchasers.
12 ] and Heighingtn v. Ontari [(32) Heighingtn et al. v. The Queen in Right f Ontari et al. (1987), 60 O.R. (2d) 641 (Ont. H.C.). This case had a result similar t Sevidal, ibid., except that the Ontari gvernment was als fund liable fr nt disclsing infrmatin regarding the cntaminatin when it allwed the subdivisin t be built. In bth cases, the damage awards were based n the reduced value f the prperty due t the cntaminatin. ], where the undisclsed imprtant defect in a residential develpment was the presence f radiactive sil; C.R.F. Hldings Ltd. v. Fundy Chemical Internatinal Ltd. [(33) C.R.F. Hldings Ltd. v. Fundy Chemical Internatinal Ltd. (1980), 21 B.C.L.R. 345; aff'd (1983), 39 B.C.L.R. 43 (C.A.). ], where the vendr was aware that certain cmmercial prperty cntained a radiactive cntaminatin, yet he advised the purchaser in a cnversatin that the prperty had ``excellent fill'' withut telling him f the cntaminatin; [(34) Ibid., at p. 353.] and Tuttahs v. Maciak [(35) Tuttahs v. Maciak, supra, nte 8, at p. 58. The curt fund that the pllutin evlved frm being minr, in which case it appeared that the purchasers culd ``make d'', t ne f ``alarming prprtins''. ], where the hidden and imprtant defect in a restaurant was the presence f gasline in the drinking water. Curts ften sympathize with the purchaser in these situatins. In Sevidal v. Chpra [(36) Sevidal v. Chpra, supra, nte 11.], the curt placed a duty n the vendr nt nly t disclse a latent defect n the subject prperty but als t disclse a prblem in a nearby prperty which wuld pse a ptential danger t the purchaser. In Sevidal v. Chpra, the curt placed a duty n the vendr nt nly t disclse a latent defect n the subject prperty but als t disclse a prblem in a nearby prperty which wuld pse a ptential danger t the purchaser Errr in substantialibus Caveat emptr als may nt apply in situatins where the vendr is ``inncent'' in the sense f nt knwing abut the presence f serius envirnmental prblems regarding the subject prperty. Specifically, the dctrine f errr in substantialibus -- errr as t substantial matters -- allws the purchaser t rescind the transactin and have the purchase mnies returned [(37) Fr example, in Fessertn v. Wilkinsn (1914), 17 D.L.R. 858 (Ont. S.C.), the curt stated at p. 348: ``The purchaser has the right t refuse t accept smething ther than what he thught he was purchasing and which the cntract calls fr...''. This dctrine as als been applied in cases invlving fraud. See Grnau v. Schlamp Investments Ltd. (1974), 52 D.L.R. (3d) 631 (Man. Q.B.); Mann v. Raitn Hldings Ltd., (1984), 3 W.W.R. 42 (B.C.S.C.).] in certain situatins where the vendr makes an inncent and imprtant misrepresentatin f the subject prperty. The curts use varius appraches t defining an ``imprtant'' misrepresentatin. Fr example, curts and legal writers have said that the defect must be ``material'' [(38) Re Stieglitz and Prestlite Battery Divisin v. Eltra f Canada Ltd. et al. (1980), 119 D.L.R. (3d) 672 (Ont. H.C.).], that a misrepresentatin f a defect must g t the ``rt f title'' [(39) D.H. Lamnt, Real Estate Cnveyancing, Law Sciety f Upper Canada, Department f Cntinuing Educatin, Trnt, 1976, at p. 165.], r that the purchaser must receive smething ``cmpletely different'' than what was bargained fr. [(40) Alessi v. Jvica (1973), 42 D.L.R. (3d) 242 (Alta. C.A.).] These smewhat different appraches reflect the unsettled state f the law in this area. [(41) In Alessi, ibid., at p. 256, the curt in fact stated that there was n ``hard and fast rule'' as t what defines an imprtant misrepresentatin. Adding t the uncertainty f this bdy f law are several anmalus in substantialibus cases where the misrepresentatin was nt inncent but fraudulent (fr example, Mann, supra, nte 17) and where the relief granted was damages rather than rescissin. See McMaster University v. Wilchar Cnst. Ltd. (1971), 22 D.L.R. (3d) 9 (Ont. H.C.).] Since
13 judicial interpretatins f the dctrine f errr in substantialibus vary, purchasers shuld nt necessarily expect relief where they discver inncent and imprtant misrepresentatins....the defect must be ``material'',... a misrepresentatin f a defect must g t the ``rt f title'', r... the purchaser must receive smething ``cmpletely different'' than what was bargained fr Liability f the Develper-Vendr In British Clumbia, sme residential builders vluntarily ffer a limited warranty plan cvering defects f up t $3,000 in value, an express cntractual exceptin t caveat emptr up t that sum. [(42) New Hme Warranty Prgram f British Clumbia and the Yukn, ``Schedule A'', Rev.07/88.] Other jurisdictins have mandatry new hme warranty plans which effectively reverse the caveat emptr rule fr new hmes. [(43) Fr example, see Ontari's New Hme Warranties Plan Act, R.S.O. 1980, c. 350.] THE LEAKING OIL TANK A Vendr's hme used heating il in the 1950s and 1960s. In 1970, the Vendr cnverted t natural gas and plugged the undergrund il tank. In 1989, the Vendr sld his huse t the Purchaser. The Vendr did nt knw whether the tank leaked and he did nt disclse the presence f a tank t the Purchaser. Shrtly after the sale, the Purchaser excavated and discvered that the tank had leaked. The remediatin will be cstly, s the Purchaser sues the vendr. Sme Legal Cnsideratins: 1. The general rule is caveat emptr, unless ne f the exceptins t the rule applies. 2. The Vendr has a duty t disclse certain ``material defects'' knwn t the Vendr. The curt wuld cnsider whether the leaked il is a majr r a minr defect. If the defect psed a ptential danger t the Purchaser, the Vendr wuld be mre likely t be fund liable. [See Tuttahs and Caleb in Sectins and 2.2.] 3. The Purchaser might seek relief against the Vendr n the basis that the defect resulted in the Purchaser receiving smething cmpletely different than what the Purchaser bargained fr. [See the dctrine f errr in substantialibus, in Sectin Nte especially the uncertainties regarding hw the curt applies this dctrine.] 4. The Purchaser shuld carry ut reasnable investigatins. At issue wuld be whether the Purchaser shuld reasnably knw that such ld huses were nce heated with il and that il tanks remain in the grund and culd leak. [See Sectin 2.2.] The curt held that while caveat emptr prtected the vendr in a cntractual sense, the vendr was nnetheless liable under trt law fr negligently cnstructing a defective huse. In additin t exceptins t caveat emptr based n cntract law, the law als prvides relief fr purchasers based n trt law in certain situatins where a vendr-develper sells defective hmes. [(44) Fraser-Reid v. Drumtsekas (1979), 103 D.L.R. (3d) 383 (S.C.C.) which adpted Duttn v. Gbnr Regis United Bldg. C.,  1 A11 E.R. 462 (C.A.).] In these situatins, the purchaser is nt limited t damages based n breach f cntract alne. In Ordg v. Missin [(45) Ordg v. Missin (1980), 110 D.L.R. (3d) 718 (B.C.S.C.).], a builder sld the plaintiffs a new huse that was fund t have cnstructin defects in the fundatins. The curt held that while caveat emptr prtected the vendr in a cntractual sense, the vendr was nnetheless liable under trt law fr negligently cnstructing a defective huse. The reasning behind this and ther similar cases [(46) See als Smith v. Melancn,  4 W.W.R. 9 (B.C.S.C.) and DiCastri, supra, nte 10, c. 7, para. 241.] is that the develper r builder reasnably shuld be expected t prvide new and mass-prduced huses withut substantial defects. 2.2 Caveat Emptr: STILL RELEVANT
14 One shuld nt cnclude frm these cases that caveat emptr n lnger applies where the subject prperty has envirnmental prblems. Caveat emptr is still the basic rule and the mere presence f pllutin r an envirnmental prblem is nt necessarily sufficient t avid the rule. In Caleb v. Ptts [(47) Caleb v. Ptts (1986), 7 A.C.W.S. (3d) 107 (Ont. C.A.).], the vendr knwingly sld prperty n which the wellwater supply was plluted by methane gas. The curt fund that while this defect wuld lwer the value f the prperty since the water had a nxius taste, the defect was minr and wuld nt render the prperty unsafe. As a cnsequence, there was n fraud and caveat emptr applied. [(48) It may be difficult t recncile this case with anther water pllutin case referred t abve, Tuttahs v. Maciak, supra, nte 8, which fund that the gasline-cntaminated water was ``unfit fr human cnsumptin''. The curt in Tuttahs v. Maciak prvided few, if any, facts respecting the pllutin. ] Purchasers shuld take reasnable steps t discver ptential prblems. Numerus cases have cited the need fr purchasers t make apprpriate inquiries, t carry ut diligent research, and t btain apprpriate representatins. [(49) In Hartlen v. Falcner et al. (1977), 5 R.P.R. 153 (N.S.S.C.), the purchaser inspected the subject land prir t clsing and nticed a dug well which was full f water but did nt inquire abut the water quality r fluctuatins. Shrtly after the clsing, the purchaser discvered that the well dried up frequently and had pr water quality. The curt dismissed the purchaser's actin fr damages, nting that the purchaser had an pprtunity t inspect and t btain representatins frm the vendr. ] Mrever, a purchaser wh investigates but des s negligently will nt be able t avid caveat emptr. [(50) In Hy v. Lzanvski (1987), 43 R.P.R. 296 (Ont. D.C.), the vendr had intentinally suppressed infrmatin abut a latent termite prblem. The purchaser, hwever, undertk his wn investigatin f the prperty prir t the sale and negligently verlked the termite prblem. The curt held that because the purchaser undertk an investigatin he culd nt rely n the vendr's silence and the purchaser was respnsible fr his wn negligence. ].. a purchaser wh investigates but des s negligently will nt be able t avid caveat emptr. Even where the vendr is bligated t disclse a material defect, such disclsure needs t be made nly in general terms. In Srensn v. Kaye Hldings Ltd. [(51) Srensn v. Kaye Hldings Ltd. (1979), 14 B.C.L.R. 204 (C.A.).], the vendr tld the purchasers in general terms abut a prblem with a swimming pl. The curt fund that this generally-stated infrmatin was sufficient t enable the purchasers t assess their legal psitin and cnsequently did nt cnstitute reckless disregard fr the truth. THE ASBESTOS HOUSE The Vendr puts her huse n the market. The Vendr knws that the huse has asbests siding and that remval culd be cstly and raise health risks. The Vendr des nt disclse the asbests t the Purchasers. Sn after the sale clses, the Purchaser discvers the asbests, and the Purchaser sues the Vendr fr damages. Sme Legal Cnsideratins: 1. Given the rule f caveat emptr, the Purchaser may nt have a remedy unless the presence f the asbests siding can be characterized as a material defect. 2. The Vendr has a duty t disclse all knwn material defects, but nt all envirnmental prblems. The curt wuld determine if asbests pses a material defect and, if s, the Vendr's silence culd amunt t fraud -- an exceptin t caveat emptr. [See Sectin ] 3. The Purchaser shuld carry ut reasnable investigatins f the subject prperty. [See Sectin 2.2.]...purchasers shuld nt assume that the dctrine f fraud is a panacea against the harshness f caveat emptr. Finally, purchasers shuld nt assume that the dctrine f fraud is a panacea against the harshness f caveat emptr. As plaintiffs, purchasers face a heavy evidentiary burden t prve fraud ``by a prepnderance f clear and cnvincing evidence...'' [(52) DiCastri, supra, nte 10, at para ]
15 2.3 PRACTICAL STRATEGIES FOR VENDORS AND PURCHASERS Investigatins Frequently, parties in a real estate transactin set ut in the cntract f purchase and sale a number f cnditins which must be fulfilled r waived by a specific date in rder fr the transactin t cmplete. Fr example, a typical cntract f purchase and sale will stipulate cnditins relating t the purchaser btaining financing and cnducting searches abut varius aspects f the prperty. A purchaser wh wishes t investigate the pssibility f txic cntaminatin f the subject prperty must include this cnditin in the cntract f purchase and sale. A purchaser wh wishes t investigate the pssibility f txic cntaminatin f the subject prperty must include this cnditin in the cntract f purchase and sale. While it is clear that purchasers shuld make apprpriate inquiries and carry ut diligent searches, what cnstitutes a ``diligent search'' can vary greatly. In mst cases, the residential purchaser will nt cnduct the same extensive and elabrate envirnmental studies that shuld be cnducted by a purchaser f an industrial peratin. Fr example, the residential purchasers in Sevidal v. Chpra [(53) Sevidal v. Chpra, supra, nte 11.] and Heighingtn v. Ontari [(54) Heighingtn v. Ontari, supra, nte 12.] were fund nt t have a duty t take the extrardinary measures f lking fr radiactivity befre buying. Purchasers f industrial r cmmercial prperty shuld cnsider including a cnditin in the cntract f purchase and sale which permits them access t the prperty and certain recrds f the vendr fr the purpse f cnducting an envirnmental analysis prir t the clsing date. Fr example, prudent purchasers f industrial prperty shuld cnsider negtiating with the vendr fr access t the fllwing dcuments: crrespndence with gvernment agencies which are respnsible fr envirnmental matters; recrds respecting pllutin equipment and permits; any cntracts which indemnify the vendr in respect f envirnmental prblems n the subject prperty, such as frm a tenant, and which shuld be assigned t the purchaser; crprate recrds, such as minutes f directrs' meetings; crrespndence frm cncerned sharehlders respecting envirnmental matters; and previus cntracts f purchase and sale fr the subject prperty. In additin, the purchaser f a business shuld cnsider negtiating the right t interview any f the vendr's emplyees wh are respnsible fr managing the envirnmental affairs f the business. [(55) M. Hardin and J. Edwards, ``Business Transactins: Envirnmental Law Prblems and Pssible Slutins'', Chapter V in Envirnmental Law and Practice, Vlume II, The Canadian Institute, 1988, at p ]...the purchaser may wish t include in the cntract f purchase and sale the right t cllect air, sil, and water samples frm the prperty... If the purchaser is cncerned that the vendr r the vendr's files may nt have sufficient infrmatin abut ptential pllutin prblems, the purchaser may wish t include in the cntract f purchase and sale the right t cllect air, sil, and water samples frm the prperty either nce r ver a perid f time. This envirnmental sampling, especially if dne ver an extended perid, may seem cstly at the time. Hwever, given the high cst f clean-up, the heavy fines and measures which gvernments culd impse n plluters, [(56) Statutry liability is discussed in mre detail in Chapter Five.] and the ptential
16 legal liability facing plluters, [(57) Trt liability is discussed in mre detail in Chapter Fur.] it may be less expensive than discvering a prblem after the clsing date. When negtiating cnditins which allw purchasers t gather envirnmental infrmatin abut the subject prperty r business, purchasers shuld realize that vendrs might require cnfidentiality agreements t prtect their industrial secrets. There are a wide variety f methds f investigatin available t purchasers. There are a wide variety f methds f investigatin available t purchasers. The nature f the investigatin, r envirnmental audit, will depend n the particular prperty but culd include the fllwing methds: n-site inspectin fr signs f cntaminatin such as disclured vegetatin, stained sils, and ld equipment r barrels; a search f Waste Management Branch r Envirnment Canada files and discussins with such gvernment authrities t determine their knwledge f any ptential r actual pllutin prblems [(58) If there is a difficulty in btaining infrmatin held by the federal gvernment, then recurse is available under the Access t Infrmatin Act, R.S.C. 1985, c. A-1. There is n cmparable legislatin in British Clumbia, althugh if the British Clumbia gvernment refuses unreasnably t prvide infrmatin a cmplaint can be made t the Ombudsman f British Clumbia. ] (fr example, whether a ``release'' f a hazardus substance has been reprted as required by sectin 10 f the Waste Management Act [(59) Reprting requirements are discussed in detail in Chapter Five.]); a search f curt recrds t determine if there has been an envirnmental lawsuit cncerning the subject prperty; a search f land title ffice, municipal, and ther recrds t determine the past wnership f the subject prperty and neighburing prperties, which might indicate whether the past wners perated activities which released harmful substances; preparatin f an inventry f current and past uses f the subject prperty t determine whether it might be the surce f pllutants int the general area; and preparatin f an inventry f current and past uses f surrunding land t determine whether the adjacent prperty might be the surce f pllutants nt the subject prperty r int the general area. A purchaser wh des nt wish t carry ut an investigatin culd request that the vendr prvide an envirnmental audit. Hwever, if it is dne by the vendr, the purchaser has less cntrl ver the scpe and nature f the study. Careful investigatin f the prperty is imprtant t bth the purchaser and the vendr... ORGANIC LITIGATION A Purchaser is lking at an Okanagan farm n which t cnduct rganic farming. A Vendr shws a prperty t the Purchaser. The Purchaser asks abut previus use f pesticides n the prperty and is tld that nly nrmal pesticides have been used. After the sale, hwever, the Purchaser has tests dne which shw trace amunts f a banned pesticide in her first crp. This renders the prduce unsaleable as rganic prduce and the Purchaser sues the Vendr. Sme Legal Cnsideratins:
17 1. The curt wuld first lk at whether there was any express warranty in the cntract f purchase and sale respecting pesticides. [See Sectin ] 2. Since the Purchaser required the prperty fr a particular purpse, shuld she have undertaken a mre thrugh investigatin f its past use? [See Sectin 2.2.] 3. The curt wuld cnsider whether the presence f the pesticide was a material defect which the Vendr shuld have disclsed. One factr wuld be whether the Vendr knew that the Purchaser wanted t perate an rganic farm. 4. The Purchaser might als argue fraud. Wuld she be able t prve ``by a prepnderance f clear and cnvincing evidence'' that the Vendr deliberately r recklessly deceived her? [See Sectin ] Careful investigatin f the prperty is imprtant t bth the purchaser and the vendr fr tw reasns. First, the investigatin data serves as a baseline if future prblems arise and there is a need t determine hw much the vendr and purchaser cntributed respectively t the particular prblem. Secnd, an investigatin may be needed t ensure that the vendr's representatins and warranties are true and cmplete Structuring the Deal When negtiating the cntract f purchase and sale, the cntracting parties may wish t anticipate the pssibility f envirnmental prblems... These pre-clsing investigatins may reveal envirnmental prblems in cnnectin with the prperty. When negtiating the cntract f purchase and sale, the cntracting parties may wish t anticipate the pssibility f envirnmental prblems and include a variety f ptins t deal with any envirnmental prblems that are discvered during pre-clsing investigatins. Fr example, if the investigatin disclses a prblem, the purchaser might be permitted nt t fllw thrugh with the transactin, r the purchaser might be required t cmplete the transactin after the cntaminatin is cleaned up. In the latter case it is imprtant t specify the standards that will be used t judge clean-up. Alternatively, the purchaser might be permitted t delay the clsing until envirnmental issues are reslved. Anther ptin might allw the purchaser t ``carve ut'' the cntaminated prtin f the prperty, if the prperty can be subdivided r if the prperty is cmprised f mre than ne parcel Clean-Up Respnsibilities A purchaser may als wish t include in the cntract f purchase and sale a clean-up plan fr any prblems that are discvered during an envirnmental investigatin. Unless clean-up respnsibilities are expressly allcated at the utset, the purchaser culd discver that he r she is invlved in a dispute abut wh will absrb the cst f clean-up. As mentined, the cntract culd prvide fr a right f terminatin shuld cntaminatin be fund in the curse f a pre-clsing envirnmental audit. Alternatively, the cntract might allw fr a price reductin t reflect the cst f clean-up if the investigatins disclse a cntaminatin prblem. Hwever, a pssible drawback t this apprach is that the cst f clean-up may exceed the value f the prperty. In mst cases, due t time cnstraints, the pre-clsing investigatin will nly determine the extent and nature f a prblem withut being able t arrive at exact estimates f clean-up csts. Anticipating this, the parties culd agree in advance t a jint clean-up plan t be implemented after the clsing if a prblem is fund during the investigatin. Such a plan culd include establishment f a trust fund fr clean-up csts and an agreement t share the csts accrding t a predetermined frmula. One authr pints ut the advantage f such a cperative undertaking:
18 Practically, this might be perceived as a cntinuing bligatin t remedy the purchaser's envirnmental prblems. Hwever, there are sme advantages fr the vendr. First, it gives the vendr greater assurance that the transactin will clse. Secndly, it lcks in the purchaser f the prperty, aviding the purchaser's right t terminate the transactin. And finally, it gives sme assurance t bth parties that at sme time, the site will be envirnmentally clean. This is particularly imprtant t a purchaser where the vendr will cease t have cntinuing substantial assets after the clsing. [(60) N.S. Rankin, ``An Overview and Discussin f Liability fr Envirnmental Prblems and Slutins'', paper presented at Insight Cnference, Cleaning Up Cntaminated Sites, January 24, Vancuver, ] Representatins and Warranties...a prudent purchaser shuld cnsider specifying additinal representatives and warranties frm the vendr. The standard frm cntract f purchase and sale fr residential prperty currently used in British Clumbia cntains a warranty frm the vendr that the subject huse des nt cntain urea frmaldehyde fam insulatin (UFFI). [(61) De Michelle v. Peterkin (1985), 37 R.P.R. 173 (Ont. H.C.) illustrates the imprtance f a UFFI clause. ] N ther ptentially txic substances are mentined n the frm. Therefre, a prudent purchaser shuld cnsider specifying additinal representatives and warranties frm the vendr. The purchaser shuld realize, f curse, that these prpsals may be rejected by the vendr. Drafting apprpriate warranties t deal with cntaminatin prblems can be cmplex. There are tw general appraches t phrasing these representatins and warranties -- specificatin f particular substances r prblems and specificatin f general types f prblems. If the representatins and warranties specify the substances which are f cncern t the purchaser, the purchaser shuld be careful t cnsider all ptentially hazardus substances. In Jnert v. Rthmans [(62) Jnert Investments Ltd. v. Rthmans, Bensn & Hedges Inc. (1989), 15 A.C.W.S. (3d) 254 (Ont. H.C.).], the vendr warranted that there was n asbests n the prperty. After the interim agreement was signed but befre the clsing, the purchaser discvered PCBs as well as asbests n the prperty and insisted that bth be remved. The curt held that the purchaser's insistence that the vendr remve the PCBs, in the absence f an express warranty respecting PCBs, represented an unfunded repudiatin f the cntract. [(63) The curt als fund that the vendr's insistence n ther terms after the interim agreement was executed cnstituted rescissin. This case illustrates the need t settle these issues prir t entering int a cntract f purchase and sale.] Bradly-wrded warranties als may nt prvide adequate prtectin fr purchasers. Fr instance, if a purchaser btains frm the vendr a very bradly-wrded warranty stating that ``n txic substances r cntaminatin exist'', the purchaser wuld face the difficult evidentiary task f prving in curt that txicity r cntaminatin actually exists. Because there can be cnsiderable uncertainty regarding whether a particular substance is txic r whether a site is cntaminated, [(64) See Txic Real Estate in British Clumbia: Identificatin f Issues, supra, nte 1, Sectin 2.3.] purchasers shuld take nte f the curts' cautius apprach t cnstruing bradly stated warranties. Warranty phrases such as ``well insulated'' and ``clean'' have nt prtected purchasers. [(65) In Sctt-Pulsn et al. v. Hpe, , 25 W.W.R. 427 (B.C.S.C.), the vendr warranted that the huse was ``well insulated''. After the clsing, the purchasers discvered difficulties in warming the huse and extensive mth infestatin in the walls. The vendr was unaware f the mth infestatin at the time f the sale. The curt held that, there being n fraud and n defect respecting gd title, the purchaser wuld have t rely n an express r implied warranty that the prperty shuld have the quality in which it was deficient. In Cle v. Parry et al., , 3 W.W.R. 73 (Man. Q.B.), the vendr's statement that land was ``clean'' was held t be a matter f pinin and nt a statement f fact -- that the state f being ``clean'' cannt be ascertained by psitive evidence.] Warranty phrases such as ``well insulated'' and ``clean'' have nt prtected purchasers.
19 In any case, a vendr wuld likely be very reluctant t give a blanket warranty that n txic prblems exist, especially if the vendr has wned the prperty nly fr a shrt perid f time and des nt knw the full histry f the site. [(66) See Hardin and Edwards, supra, nte 35, fr a review f the imprtant cnsideratins in setting ut warranties and indemnificatins.] Warranty terms shuld be drafted s that they are bjectively verifiable by a curt if a dispute arises. Warranty terms shuld be drafted s that they are bjectively verifiable by a curt if a dispute arises. Fr example, a warranty might state that certain past uses f the prperty cmplied with envirnmental statutes r that the site des nt cntain hazardus substances as defined in a particular statute. [(67) Fr example, the warranty culd refer t the list f hazardus substances fund in the Canadian Envirnmental Prtectin Act, S.C. 1988, c. 22, r the definitin f ``special waste'' in the Waste Management Act, S.B.C. 1982, c. 41.] Hwever, even references t a statutry list f hazardus substances may have drawbacks since these lists may nt be exhaustive f all the types f cntaminatin which might be fund n the prperty. [(68) An additinal prblem is that if the reference is t ``special waste'', sme waste may be missed (generic waste).] The vendr might attempt t limit his r her ttal liability arising frm breaches f warranties r representatins. Fr example, the vendr culd insist n setting time limits fr the liability t arise, impsing a minimum amunt fr a claim t avid ``nuisance'' liability, r setting a ceiling n mnetary liability. [(69) Fr example, liability culd be limited t a maximum equal t the purchase price.] The vendr may als negtiate representatins frm the purchaser. Fr example, in cases where the subject prperty has knwn envirnmental prblems, the vendr might attempt t btain a representatin frm the purchaser that the purchaser's peratins will nt make the prblem wrse. This culd prve imprtant if a dispute arse after clsing ver the extent t which the vendr and purchaser cntributed t a particular prblem Indemnities Parties t a real estate transactin ften will seek indemnities frm each ther pertaining t envirnmental matters. An indemnity expressly prvides that the indemnifying party will cmpensate the indemnified party where the latter suffers lss, damage r injury in specific circumstances. Indemnities can address many different situatins. The fllwing examples are particularly relevant in the cntext f a transactin invlving cntaminated real estate: the vendr indemnifies the purchaser fr liability arising frm an envirnmental prblem existing prir t the sale, which the purchaser has nt agreed t assume; the vendr indemnifies the purchaser fr lss r damage if the vendr fails t carry ut an agreement t clean up the site; and the vendr indemnifies the purchaser fr claims made by third parties against the purchaser fr envirnmental prblems caused by the vendr. 2.4 LIABILITY OF REAL ESTATE AGENTS The Law in a Nutshell The realtr may find him r herself in the centre f litigatin crssfire. When a purchaser unwittingly buys prperty cntaining txic substances, he r she may sn discver that the high cst f clean-up drastically reduces the value f the prperty. Such a purchaser will quickly
20 scrutinize nt nly the cnduct f the vendr but als that f the realtr t determine if there is a basis fr legal actin. In additin, the vendr may assess the ptential liability f the realtr in rder t deflect his r her wn liability. The realtr may find him r herself in the centre f litigatin crssfire. In sme cases, the realtr r the realtr's insurer may have greater assets than the vendr and thus becme an inviting ``deep pcket'' fr the purchaser r the vendr t sue. REALTOR LIABILITY ---PRINCIPLES FOR REDUCING RISKS Recgnizing Basic Vendr-Purchaser Principles: caveat emptr r buyer beware, except; express warranties [See Sectin ] fraud [See Sectin ] errr in substantialibus [See Sectin ] develpers/builders [See Sectin ] reasnable investigatins [See Sectin 2.2.] Cmpiling The Listing knw the area [See Sectin ] verify vendr infrmatin [See Sectin ] agency ffice shuld duble check [See Sectin ] Discvering Cntaminatin After Listing: must ntify; principal [See Sectin ] thers wh may rely n infrmatin [See Sectin ] Drafting Agreements: get infrmatin befre drafting [See Sectin ] cnsult a lawyer upn any cntaminatin prblem [See Sectin ] A realtr's duties are derived frm several different legal principles, including thse arising frm the law f cntract, trt and agency. The principles f cntract law require a realtr t abide by any cntracts the realtr enters int, such as the listing agreement with the vendr. In the standard frm listing agreement, the realtr agrees t try t find a purchaser n the terms specified by the vendr in return fr the vendr's prmise t pay a specified cmmissin t the successful agent. Since the listing agreement cntemplates that the realtr will act as an ``agent'' fr the vendr, the realtr's duties are als gverned by the law gverning agents. Agency law prvides that the central duty f the agent is t act in the best interest f the principal. This duty is reflected in the realtr's Standards f Business Practice [(70) Canadian Assciatin f Realtrs, Standards f Business Practice, 1989, Article 2.] which bliges the realtr t ``prtect and prmte the interests f his client''. The realtr als has... a duty... t act hnestly and t exercise reasnable care and skill when prviding infrmatin and pinins which might reasnably be relied upn by third parties t their detriment.