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Environmental Liability in "As Is" Transactions

The recently reported case of Antorisa Investments Ltd. v. 172965 Canada Ltd. 82 O.R. (3d) 437 gives support for something real estate lawyers have been advising clients for some time. If you make no representation or warranty, give people an opportunity to inspect and test on the property and have the Purchaser take the property in an “as is” condition, a Vendor can escape liability to the Purchaser for environmental contamination on the property even if the Vendor caused it.

In 1989 Esso acquired the shares of Texaco and was ordered by the Federal Bureau of Competition Policy to dispose of a large number of properties, including a number to be sold for continued petroleum use. Because the time frame was short Esso couldn’t intrusively test all the properties so it developed an evaluation process that established which properties were most likely to be contaminated and tested them but sold the rest on an “as is” basis giving the purchasers the opportunity to do intrusive testing and with Esso remediating any problems discovered.

The provisions of the agreement were very comprehensive and had a full range of Vendor protective provisions - “as is”, advice as to the potential for contamination, no liability for environmental condition, no representations, “at purchaser’s at risk” after closing and an indemnification. Antorisa bought four properties, identified contamination on three of them, which Esso remediated but did limited testing of the fourth which was much later was discovered had been severely contaminated. It wanted the court to impose tort liability on Esso, which had, as Texaco, caused the contamination.

The court held that the terms of the agreement were clear and express enough to override any possible claim in tort and specifically supported the common law position of caveat emptor (buyer beware) in the sale of real property, absent fraud, mistake, negligent representation or a latent defect.

It should be pointed out that while the provisions of the agreement did limit Esso’s liability to Antorisa, the case was a private tort claim and Esso may well have had liabilities for orders under environmental legislation or tort claims made by third parties. Accordingly, Vendors are wise to more fully understand the environmental condition of properties they are selling, particularly if the Vendor has carried on activities that might have caused environmental contamination.

Bruce McKenna

May 10, 2007 in Environmental | Permalink

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So, basically, the principle has been that you purchase the potentially contaminated property but if you do not discover the contamination on time (even if you have spent loads of money for testing), you cannot get the previous owner to clean up its mess? Is that right? If so, that is a scandal!

Posted by: RealToronto | Jan 22, 2008 2:15:40 PM

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