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The presense of fuel oil tanks – cause to investigate further.

It is just a fact of life that fuel oil tanks inherently leak. That is why there are standards imposed which govern not only the manufacture and installation of fuel oil tanks but the maintenance and removal. A reasonable person would assume if a fuel oil tank is new or fairly new there is nothing to be concerned about.

Not so in the opinion of Madam Justice Healey in a decision out of Bracebridge. This decision involves a fuel tank which leaked after less than 5 months of use. The tank was manufactured to be in service for 10 years and even had a five year warranty. The cause it was discovered was a phenomenon known in the industry as microbally induced/influenced corrosion. In lay man’s terms a small hole developed in the bottom of the tank due to internal corrosion. The expert evidence accepted by Justice Healey was that this could have been avoided if the tank were coated inside at an approximate cost of $150.00. Justice Healey stated “that on a cost benefit analysis it is difficult to justify avoiding such cost for protection of the environment.”

Read the full summary and link to this case in our March 2012 newsletter by clicking here.

If you have any questions about this article, I invite you to contact me at shari@elliottlawyers.com.

The content of this blog is intended to provide a general guide to the subject matter. The information does not constitute legal advice and a solicitor and client relationship is not created.

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When is a Used Residential Property Subject to HST?

It is important to turn your mind to whether a used residential property is subject to HST if that property is larger than a half hectare. Revenue Canada’s definition of a principal residence includes a limit on the land size to a half hectare. This is the amount of land that is usually considered to be reasonably necessary for the use and enjoyment of the building as a place of residence. This is not a firm rule there is room for the land included in the principal residence to be expanded if it can be shown to be reasonably necessary for the use and enjoyment of the building as a residence. For example, the land in excess of the half hectare could be considered reasonably necessary if the location of the buildings on the lot require land in excess of a half hectare to permit access to public roads, or if there is a minimum lot size restriction.

In cases where you are faced with separating the excess land from the residence land for HST purposes the value assigned to each part must be fair and reasonable i.e. based on the fair market value of each portion. Restrictions that would be placed on the excess lands would impact this assessment.

The facts of each situation must be reviewed carefully. The tax treatment by previous owners should also be considered. For the real estate agent drafting the agreement of purchase and sale knowledge of this issue is required. The agreement should be drafted to acknowledge that lands in excess of that reasonably required for the residence may be subject to HST. The apportionment and valuation should be left to the lawyers to sort out.

If you have any questions about this article, I invite you to contact me at shari@elliottlawyers.com.

The content of the articles in this blog are intended to provide a general guide to the subject matter. The information does not constitute legal advice and a solicitor and client relationship is not created.

 

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The Role of Seller Property Information Statements

I am often asked what my opinion is on whether Seller Property Information Statements (SPIS) should be used in a real estate transaction.

This question has become more common in the past year, after recent court decisions where real estate agents were held to have not discharged their obligation to properly inform the purchaser about defects with the shanghai property. It is interesting to note that the debate has centered around the SPIS even though it wasn’t even used in all the cases giving rise to this debate.

What is common to the recent caselaw is the reliance by the judges on the Real Estate Agents Code of Ethics. It is important to note that a contributing factor was that in the majority of the cases where negative findings resulted against the real estate agents the agents were double ending the transaction.

In my opinion whether an SPIS is involved or not is not the key question. The important question is: did the real estate agent discharge his/her obligations to their clients or customers?

In Ontario, real estate agents are governed by the Real Estate and Business Brokers Act, 2002. Under this legislation, agents are required to demonstrate reasonable knowledge, skill, judgment and competence in providing opinions, advice or information. In addition, agents are required to advise a client or customer to obtain services from other persons if the agent is not able to provide the services with reasonable knowledge, skill, judgment and competence or is not authorized by law to provide the service.

While a SPIS can assist agents in discharging their duties under the Code of Ethics, it is not a full response to an action against an agent. Undue reliance on the SPIS can even be the reason for the agent not fully discharging his or her obligations.

I would suggest that was the situation in the decision out of Sudbury last year. This decision is an example of an agent placing too much reliance on the SPIS, resulting in the judge finding that the agent failed to properly discharge her obligations to both the buyer and the seller.

The question should not be whether or not an SPIS should be used in Ontario. The proper question is what is the obligation of the real estate agent to both the purchaser and the seller and how best should that obligation be discharged. If the agent feels the SPIS will assist in discharging that duty then it should be used as a tool to ensure the agent’s duties are fully and properly discharged.

If you have any questions about this article, I invite you to contact me at shari@elliottlawyers.com.

The content of the articles in this blog are intended to provide a general guide to the subject matter. The information does not constitute legal advice and a solicitor and client relationship is not created.

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Environmental Law Meets Real Estate Law

There is no excuse today for real estate agents not to be aware that the environmental status of properties needs to be addressed in the purchase agreement.

By becoming aware of the issues, real estate agents can avoid the discovery of unexpected environmental issues. Environmental liability is applied to a wide range of actors, not just the polluter.

The level of due diligence required will vary with the nature and use of the property, both past and future.

There are many activities that are inherently high risk to cause contamination. A short list would include chemical plants, battery manufacturing, recycling facilities, asphalt manufacturing, electroplating, metal fabrication, circuit board manufacturing, steel works, leather tanneries, ship building, repair yards, textile mills, drycleaners, scrap yards, service stations and properties with underground storage tanks.

There are methods to investigate and, if required, remediate the contamination. The primary tool is an Environmental Site Assessment (“ESA”) for this investigation.
An ESA starts with what is referred to as a Phase I. A Phase I is mainly a paper search to determine actual and potential site contamination both on and off-site. A Phase I usually takes between 2-3 weeks and costs approximately $2,000 – $3,500.

A Phase II is considered an intrusive investigation to assess potential or known impacts to the soil and groundwater. Usually boreholes and monitoring wells are installed and samples are taken and analyzed at a laboratory. The cost will vary with each project.

ESAs are important to allow for the risk/cost to be allocated properly. If a vendor has an ESA completed prior to offering the property for sale, the vendor can dictate the terms in the agreement. This would include restrictions on the future use of the property in order to limit liability. The vendor might also choose to remediate the property prior to the sale to maximize the sale price and increase interest.

Professionals should be involved early. Full disclosure and indemnities are key to limiting liability.

A Record of Site Condition (“RSC”) which is available under the Environmental Protection Act can provide immunity to the current and future owners if required in the purchase agreement. It is important to be aware that an RSC is required under the Environmental Protection Act when the use is changing to a more sensitive use i.e. industrial to residential.

Real estate agents need to be aware that environmental contamination is best addressed in the purchase agreement. Former owners may still be liable even when selling on an “as is” basis. Purchasers may be liable for existing contamination, ongoing mitigation or off-site discharges.

Agreements that properly allocate the risk and cost are complicated. Representations and warranties need to be clearly drafted. Covenants and conditions to closing are likely required. Indemnities are key, but only as good as the party providing the indemnity which is why holdbacks, securities and environmental insurance might be required.

To avoid the tricks and traps associated with contaminated properties, environmental issues should be addressed early. Knowledge of the risks/issues can lead to solutions. For more information on contaminated properties, please contact me at shari@elliottlawyers.com.