A new case from the Ontario Superior Court provides another example of the risks associated with purchasing contaminated sites. In a failed real estate transaction, the potential purchasers were left with substantial costs but did not own the properties they had intended to buy.
In 1828445 Ontario Ltd. v. Guerra, experienced corporate real estate developers began the process of purchasing three adjacent properties, intending to redevelop them as a high rise. They knew that at least one of the properties was contaminated based on the environmental investigation of a nearby property they already owned.
Before the end of the conditional period for the offer to purchase the new properties, their consultant warned them that: the soil was “heavily impacted”; groundwater contamination exceeded Table 3 standards; the contamination might have spread to other neighbouring properties; and there was a risk of liability. The estimated cost of remediation was $1.35 M.
Nonetheless, the plaintiffs decided to waive the conditions and proceed. There was some evidence that the plaintiffs intended to use the presence of contamination and the threat of litigation to try to negotiate a lower selling price.
Further investigation confirmed that one of the properties, the site of a former dry cleaner, was the source of the contamination, and that it had spread onto 5 or 6 neighbouring properties.
The plaintiffs brought an action against the vendors, although the transaction had not yet closed. On the day of closing, they requested a remediation agreement and a $5M bond. Not surprisingly, the vendor refused and the transaction did not close.
The defendants successfully brought a motion to have the action dismissed because there was no genuine issue requiring a trial. The court concluded:
[72] Having elected to assume the risk and make the contract unconditional, the plaintiff cannot subsequently use the fact that the risk has materialized as a basis for re-negotiating the contract. The additional information obtained during the summer of 2011 may have helped to quantify the risk, but the nature of the risk, and the implications arising from it, remained the same.
At the end of the day, the plaintiffs did not own the properties, but were still on the hook for the deposits and assignment fees associated with the failed transaction.
This and many other cases demonstrate that those dealing with the purchase and sale of contaminated sites should exercise caution and due diligence. They can be very expensive mistakes.