Due Diligence in Buying Residential Property – Beware Leaking Oil Tanks

26 avril 2011 | Charles W. Bois, Sarah D. Hansen

( Disponible en anglais seulement )

For most of us in today’s age of natural gas and electricity, we don’t often think about the implications of home heating oil tanks and the contamination that they can cause to residential properties.  For those who have bought or sold residential properties in the past, it was likely not an issue of concern.  However, a recent decision of the B.C. Supreme Court shows that you should be concerned about residential fuel tanks when buying and selling land, because the cost implications can be in the hundreds of thousands of dollars.

The case in question concerns a series of transactions.  The Colbecks purchased a property in September 1998.  Their offer to purchase was subject to a satisfactory building inspection.  The building inspector reported that there was evidence of a buried oil tank because there was a vent and fill pipe and the inspector recommended locating the tank and testing for oil products.  The Colbecks did not act on the inspector’s recommendation until after they decided to sell the property in 2000.  At that time, the Colbecks retained acontractor to deal with the tank.  The contractor said that he pumped out 580 gallons of water, oil and sludge, cleaned the tank and filled the tank with sand for $900.  (As an aside, the Court found that the contractor, if he took any steps to decommission the tank, he did not do so in a workmanlike manner.)

Ms. Aldred bought the property in 2000.  In negotiating the contract, the Colbecks advised Ms. Aldred about the inspection two years earlier and the work that they had completed which meant that no additional inspection would be required.  Ms. Aldred was given a copy of the inspection report.

After purchasing the property in 2001, Ms. Aldred decided to sell the property in 2007.  Her realtor advised her to check the property’s disclosure statement regarding the oil tank and Ms. Aldred retained another contractor to inspect. This company located a tank at the same location identified by the previous contractor.

Ms. Aldred signed the contract on the basis that she would be responsible for removing the tank and dealing with any contamination arising from the tank. Unfortunately, although the cost of removing the tank was in the thousands of dollars, the total bill for cleaning up the contamination caused by the leaking oil tank was over $200,000.

Ms. Aldred sued the Colbecks for negligently misrepresenting the condition of the property under the B.C. Environmental Management Act (the cost recovery action).  Although the Court found that the Colbecks did not tell Ms. Aldred that the tank had been removed, the Court did find that the reasonable meaning to be accorded to the Colbecks’ statement that the tank had been “decommissioned”, and the meaning they intended to convey, was the tank had not damaged the property.  That representation was incorrect.

The Colbecks had contacted the appropriate municipal authority which was the local Fire Department and followed the recommendation concerning the decommissioning of the tank by retaining a person recommended by the Fire Department.

The Colbecks argued that they did the right thing by retaining the contractor, but the Court did not agree that that was sufficient.  The Court found that the cost and time it was said to have taken to do the work (1 day) suggests that an appropriate amount of work was not done.  In other words, the description of the work, the small amount of time taken and the price charged were sufficient to raise a suspicion that the work was not properly done or not done at all.  In addition, there was no evidence that the Colbecks inquired as to whether there had been any testing done for leaks from the tank and therefore contamination into the surrounding soil and groundwater as a result of leaks from the tank.  This was despite some of the previous experience by the Colbecks where they had completed remediation work for a leaking tank.

The Court found the Colbecks liable for negligent misrepresentation.  The Court also found the Colbecks responsible persons under the cost recovery provisions of the Environmental Management Act.

In particular, the Court concluded the Colbecks did not undertake all appropriate inquiries consistent with good commercial customary practice at the time, in order to fall within the “innocent purchaser” exemption under the Environmental Management Act.  Rather, the Court found that the Colbecks were warned about the possible problems in the building inspection report – about the presence of an oil tank – and did nothing to avoid that or deal with it.

Further, the failure to examine the state of the tank over two years, during which the Court found the leakage must have continued, suggested to the Court that the Colbecks contributed to the contamination of the site.

The Colbecks did not succeed on the doctrine of caveat emptor (buyer beware). Ms. Aldred’s questions about the property and the Colbecks’ statements that the tank had been dealt with negated this argument.

As between the parties in this action, the Colbecks were found to be solely responsible for the remediation of the property.  The Court left open the question of whether the Colbecks could pursue prior owners for contribution.

On the question of what Ms. Aldred recovered, the Court found that she could recover for the costs of purchasing the property, about $6,000.

However, the Court declined to award Ms. Aldred damages for:

  • loss in value of the property (because there was no evidence of loss in value);
  • losses as a consequence of the delay in selling the property due to the contamination, such as property taxes, utility costs and vacant home insurance (because those losses were “too remote”);
  • finance costs; and
  • general damages for discomfort, disappointment, anxiety and frustration.

However, the Court found that Ms. Aldred was entitled to the “reasonable cost” for the remediation of the contamination.  That was not quantified because there was some dispute about the actual costs and whether they were “reasonable”.

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