If you’re purchasing or selling commercial property in British Columbia, you know the process requires substantial due diligence. From title searches and land surveys to lease agreements and zoning regulations, the goal is to identify risks and liabilities that could affect the use or value of the property down the line.

Environmental due diligence is a critical element of due diligence. If overlooked, environmental issues can have significant legal and financial consequences for parties to a commercial real estate transaction. This blog will walk you through what environmental due diligence entails, common environmental concerns, the three phases of environmental site assessments, and relevant laws in B.C.

What Is Environmental Due Diligence?

Environmental due diligence is the investigation and assessment of potential environmental risks and liabilities associated with a commercial property. Identifying these risks and liabilities early in the real estate transaction is critical because doing so can prevent unexpected and unwelcome costs and delays.

Common Environmental Issues

Environmental due diligence can uncover a wide range of potential issues in the context of a commercial property. Some of the most common include:

  • Soil contamination: Past industrial uses, such as gas stations or manufacturing plants, can leave harmful substances in the soil, such as petroleum hydrocarbons or heavy metals.
  • Groundwater contamination: Pollutants can seep into groundwater from leaking underground storage tanks.
  • Hazardous materials: Older buildings may contain asbestos, lead paint, or other hazardous materials that pose significant health risks.
  • Waste management and disposal: Illegal dumping or improper disposal of waste can cause contamination.

3 Phases of Environmental Site Assessments

Environmental due diligence in BC is typically conducted in phases.

1. Phase 1 Environmental Site Assessment

The Phase 1 Environmental Site Assessment is a preliminary investigation to gather information about potential or existing risks and liabilities.

Key components of Phase 1 include:

  • Review of historical records (e.g., aerial photos, land title documents, etc.)
  • Site inspection
  • Interviews with current or past owners
  • Review of environmental records

If the investigation reveals potential contamination, further steps are required.

2. Phase 2 Environmental Site Assessment

Phase 2 is more intrusive and involved than Phase 1. While Phase 1 focuses on gathering information and identifying possible concerns, Phase 2 involves physical testing and sampling to confirm the presence of contamination.

Key components of Phase 2 include:

  • Soil sampling: Soil is collected from various locations on the site, and samples are analyzed for substances.
  • Groundwater testing: Monitoring wells are installed to collect groundwater samples, which are then tested for contaminants.
  • Indoor air quality testing: Indoor air sampling may be conducted to assess whether vapours from contaminated soil or groundwater have migrated indoors.
  • Building material inspections: Inspection for materials like asbestos, lead paint, and mould is especially relevant during redevelopment, renovation, or demolition projects.

The goal of Phase 2 is to understand the extent of the contamination and what it includes.

3. Phase 3 Environmental Site Assessment (Remediation)

Phase 3 occurs when contamination has been confirmed, and it is determined that remediation is required. During remediation, the site is cleaned up to meet regulatory environmental standards. In other words, Phase 3 addresses whatever environmental issues were uncovered in Phases 1 and 2.

Key components of Phase 3 include:

Once the three phases are complete, there is often ongoing monitoring of the site to ensure it remains free of contamination and the remediation continues as necessary.

Environmental Laws and Regulations

In B.C., environmental due diligence is governed by a combination of laws, regulations, and guidelines. The primary piece of relevant legislation is the Environmental Management Act. This statute provides the framework for managing contaminated sites in B.C. It sets out the responsibilities for site investigation, remediation, and liability. Additionally, it grants authority to the B.C. Ministry of Environment and Climate Change Strategy to oversee contaminated sites.

A key regulation under the Environmental Management Act is the Contaminated Sites Regulation. This regulation outlines the processes and standards for investigating and remedying contaminated sites. It also provides technical standards for soil and groundwater and how to evaluate them.

Other vital pieces of B.C. legislation include:

  • Environmental Assessment Act: This Act governs environmental assessments for projects that could have significant environmental consequences, including the risk of contamination.
  • Water Sustainability Act: This Act regulates water use, including groundwater extraction and protection.
  • Hazardous Waste Regulation: This regulation controls the handling, transportation, and disposal of hazardous wastes.

Taken together, these laws aim to ensure that the requirements for environmental due diligence are clear and rigorous. The B.C. Ministry of Environment provides a wealth of detailed guidance and resources about conducting environmental site assessments in BC to ensure compliance with all relevant legislation.

Due Diligence Defence

Under the Environmental Management Act, anyone accused of breaching the act can raise the due diligence defence. This defence allows them to avoid liability if they can prove that they took all reasonable steps to prevent the offence.

For the due diligence defence to succeed, a party must demonstrate that they:

  • Implemented appropriate systems or procedures to prevent environmental harm
  • Complied with environmental standards
  • Took immediate action upon discovering the environmental issue

The accused party bears the burden of proving it conducted environmental due diligence.

Environmental Due Diligence: A Critical Element of B.C. Commercial Real Estate

Many believe that being environmentally conscious is a moral imperative. However, as this blog has shown, paying attention to environmental issues also has legal implications. Environmental due diligence is vital to commercial real estate transactions in B.C. Understanding the nuances of the process can help prospective commercial property buyers or sellers make smart, informed decisions and avoid costly disputes, all while paying due respect to Mother Earth.

CM Lawyers: Vernon & Salmon Arm Real Estate Lawyers Providing Commercial Real Estate Advice

In commercial real estate transactions, the importance of due diligence, and specifically environmental due diligence, cannot be overstated. When buying or selling property, your due diligence must be thorough and rigorous to avoid costly and time-consuming litigation in the future.

The experienced real estate lawyers at CM Lawyers in Vernon and Salmon Arm are deeply familiar with the nuances of due diligence and are dedicated to ensuring your real estate purchase runs smoothly. To discuss your real estate matter with a member of our team, call us in Vernon at (250) 308-0338 or Salmon Arm at (250) 803-9171, or contact us online.