Agreements subject to environmental conditions: A cautionary tale

9 décembre 2021 | Michael McCluskey

( Disponible en anglais seulement )

A recent decision from the Ontario Superior Court of Justice provides a cautionary tale for those who engage in agreements subject to an environmental remediation condition.

Background: 384130 Ontario Limited v. 520611 Ontario Limited

In 2003, the plaintiff entered into the agreement to purchase the defendant’s property for $415,000. Pursuant to the contract, the plaintiff paid a deposit to the defendant, as well as an additional cost to enable the defendant to remediate the environmental contamination of his property, as the agreement required. The plaintiff also began occupying the property for the operations of his auto repair business, and paid monthly rent to the defendant, subject to the closing of the condition. Both parties agreed that the remediation was subject to the satisfaction of the Ontario Ministry of the Environment, Conservation and Parks (the “Ministry”).

In 2019, the defendant sold the property to new purchasers at twice the original sale amount and who did not require a remediation condition. The defendant relied on the passage of time as rationale for the position that the original agreement was no longer valid. Additionally, since the Ministry was required to sign off on the completed work prior to the original sale and had ultimately not done so, the defendant took the position that the Ministry’s involvement constituted a “true condition precedent”, ultimately frustrating the terms of the agreement in any event.

Miller Thomson was counsel to the plaintiff.

Decision

Miller Thomson successfully argued that increasing environmental remediation costs, beyond which was originally anticipated, does not frustrate agreements to purchase property conditional on environmental remediation. The anticipated cost of remediation was $30,000. Despite spending approximately $100,000 more than anticipated, and despite the remediation remaining incomplete, the Court upheld that the promising party was still responsible for the remediation condition regardless of increased scope and cost. The defendant was ordered to complete its sale of real property to the plaintiff.

Key Takeaway

While this particular case dealt with a purchase of property conditional on prior remediation, the decision confirms that increased costs associated with the remediation is not enough to frustrate an agreement. It is recommended to ensure multiple rectification quotes are obtained, and fixed price contracts with remediation contractors are entered into to limit exposure to ongoing costs. Additionally, if providing the promise to remediate, ensure any agreement contains an agreed upon cap of remediation expenses to avoid ongoing costs.

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