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More Certainty for Brownfield Redevelopment Limiting Liability for Innocent Parties
May, 2008
By Annie Thuan
When the Ontario government enacted the Brownfields Statute Law Amendment Act (Brownfields Act) in 2001 more certainty was injected into the process of redeveloping properties known as brownfields that are perceived to have environmental contamination. Parties - including property owners, developers, lenders and receivers - were provided certain protection against regulatory cleanup orders and cost liability. The phase-in of the legislation was completed in October 2005.
In an effort to clarify some of the provisions dealing with regulatory liability protections and to further encourage brownfield development, the Ontario government introduced the Budget Measures and Interim Appropriation Act, 2007 (Bill 187) in January of 2007. It received Royal Assent on May 17, 2007, but not all sections came into force. In order for many of these amendments to take effect, revisions are required to O. Reg. 153/04, the Records of Site Condition regulation.
The Brownfields Act introduced a regime that allowed for protection against certain cleanup orders upon filing of a Record of Site Condition (RSC) on the Environmental Site Registry. Unless there is a change in property use to a more sensitive use, such as going from industrial to residential, the filing of an RSC is voluntary.
The benefit of filing an RSC, however, is that it protects certain parties from being issued Ministry cleanup orders. This allows eligible parties to move forward with development of a brownfield site and be protected against facing a cleanup order in the future. The eligible parties include: (a) the person who filed the RSC and any subsequent owners of the property; (b) occupants of the property at any time after the RSC was filed; and (c) persons with charge, management or control of the property at any time after the RSC was filed.
CLARIFICATIONS FOR RSC PROTECTION
There are certain re-openers or circumstances in which RSC protection may be lost. Bill 187 clarifies the circumstances in which immunity is lost. Many of these clarifications limit the potential liability of innocent parties who did not cause or contribute to the contamination.
Bill 187 amendments relating to re-openers that are now in force include the following:
Change in use. In the past, immunity was lost if there was a change in the use of the property to a more sensitive use. Now, loss of immunity applies only to the person who caused or permitted the change in use and who owns, occupies or has charge, management or control of the property at the time of the change.
Contraventions of risk management measures. Where a specific restriction imposed on the property is contravened, RSC protection is lost only for the contravening party.
Emergency orders. RSC protection does not apply where the Ministry believes there is a danger to the health or safety of any person resulting from the presence of a contaminant on the property. Bill 187 clarifies that this re-opener applies only to the current owner of the property.
False or misleading information. RSC protection may be lost where the RSC contains false or misleading information and, now, also where there is a false or misleading certification statement in the RSC. In such a case, all parties lose immunity.
Another significant clarification, which is not yet in force, relates to the off-site migration of contaminants. RSC protection is lost if a contaminant migrates to another property after the RSC is filed. However, Bill 187 clarifies this re-opener so that immunity can still be retained if the contaminants migrating off-site do not exceed the prescribed environmental standards and the property owner did not cause or permit the contamination.
FILING PROCESS
In the past, there were significant uncertainties as to when the Ministry would conduct audits on the information submitted for an RSC, leading to uncertainty in the process. Bill 187 introduces a new process for filing an RSC and the possible audit of that RSC. This amendment has not been proclaimed into force and regulations will be required before this new process will take effect.
Under the new process, when an RSC is submitted, the Ministry will conduct an initial review and must be satisfied that all the required documents have been submitted. Once satisfied, the Ministry will issue a notice of receipt.
Upon issuance of a notice of receipt, the Ministry must decide, within a specified time period, whether to provide the owner with written notice that: (i) the RSC cannot be filed because it was not completed in accordance with the regulations; or (ii) the Ministry intends to conduct a review of the RSC. Alternatively, the Ministry may provide the owner with written acknowledgement that the RSC has been filed on the Environmental Registry. The Ministry cannot request an audit of the RSC after this time period.
OTHER BILL 187 AMENDMENTS
Bill 187 eliminates the option of addressing contamination by means of horizontal severances - i.e. separating ownership of the property at the surface level so the owner of the air rights does not have liability. All contaminants in the land and groundwater that are on, in or under the property and prescribed by the regulations or standards specified in a risk assessment must now be within the standards. This is a significant change because remediating a property using horizontal severances was seen as a cost-effective approach. This amendment is now in force.
Bill 187 extends civil liability protection for municipalities and conservation authorities that rely on RSCs in issuing planning approvals and building permits if the RSC is inaccurate. This revision provides additional comfort to municipalities and eliminates the need for peer reviews (having another consultant review the RSC materials), thereby expediting the process and reducing the time municipalities would otherwise take in issuing planning approvals and building permits. This amendment is also now in force.
PROPOSED CLEANUP STANDARDS
On March 23, 2007, the Ministry proposed new cleanup standards for assessing and undertaking cleanup work. These are the technical specifications as to the permissible level of contaminants.
The new standards would replace the current Ministry Cleanup Guideline, Soil, Ground Water and Sediment Standards for Use Under Part XV.1 of the Environmental Protection Act, dated March 9 2004. The Ministry is currently in the process of reviewing the new proposed standards. Amendments to O. Reg. 153/04 will be required before the new standards take effect.
Under the proposed guideline, some of the current standards have become more stringent - for example, with respect to benzene and trichloroethylene. In other cases, existing standards have become less stringent - for example, with respect to vinyl chloride.
Once the new standards are finalized, the Ministry intends to introduce a phase-in period (an 18-month time period has been discussed) to permit parties already engaged in existing brownfield redevelopment plans to use the existing standards for the filing of an RSC. The new updated standards are not intended to apply retroactively. Rather the updated standards are intended to apply only after the phase-in period has passed.
RISK
Bill 187 amendments have injected further certainty into the brownfields regulatory regime and the process of obtaining an RSC. Of significance are the amendments that clarify and limit the circumstances in which RSC protection from Ministry cleanup orders may be lost. These amendments are designed to encourage brownfields development and should reduce some of the risk of uncertainty for developers, owners, purchasers and vendors.
While uncertainty exists regarding the new proposed cleanup standards, parties that are currently engaged in remediation should complete their remediation and file the RSC as soon as possible to ensure that they receive the benefit of the existing cleanup standards.
It is also important to note that Bill 187 does not address civil liability related to contamination, including claims associated with off-site migration to neighbouring properties. As a result, it remains important that vendors and purchasers adequately allocate this risk in any agreement of purchase and sale by conducting the necessary environmental due diligence and ensuring that the appropriate indemnities, representations and warranties, and perhaps environmental insurance, are included in the purchase agreement.
Annie M. Thuan is an Associate practicing environmental and aboriginal law with Lang Michener LLP's Real Estate Group. She can be reached at 416-307-4035 or athuan@langmichener.ca. The preceding article is reprinted from the Lang Michener Real Estate Brief, Spring 2008.
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