Legal Blog

Buyer Beware

It used to be that a purchaser incurred all of the risk ensuring that land was suitable; the vendor needed to do nothing. This risk has been shifting away from the purchaser during most of this century. However, there are some duties that a purchaser must still carry out before the purchaser can cry foul. This is demonstrated in the case of Tony’s Broadloom & Floor Covering Ltd. v. NMC Canada Inc. (1996), 31 O.R. (3rd) 481 (C.A.). The purchaser (“P”) of a property was attempting to obtain rescission 4 1/2 years after its purchase from the vendor (“V”).

The Facts

1.   The property was used by V for industrial purposes and had been contaminated by V’s use.

2.   In 1985, V installed a system of wells to capture contaminants.        

3.   P operated a carpet business 100 meters from the property.

4.   P knew the property was zoned, and used, for industrial purposes, but did not know of the contamination.

5.   P wanted to build a high-rise residential condominium on the property, but never told this to V.

6.   P did not inspect the property prior to the agreement for sale or prior to closing. P was not told of the contamination prior to closing. Closing took place in September, 1988.

7.   In August, 1988, P requested and received permission from V to conduct soil tests. These tests were not done until 2 months after closing. The tests were done to determine whether the soil could support a high-rise, but revealed the contamination.

7.   In August, 1988, V was informed that the contamination wells were not functioning properly and that the contamination was getting worse. V did not inform P of this. Two months after closing, the Ministry of the Environment informed P of the problem.

8.   For 3 years after closing, P attempted to re-zone the property for residential use. Ultimately, P abandoned its plans because the bad economy made the project unfeasible. In the meantime, P used the property for warehousing.

9.   If the property was to be used for residential purposes, the contaminated soil needed be removed.

10.  The presence of the contaminant did not render the property either dangerous or illegal. The Ministry never ordered a cleanup.

THE DECISION

The Court of Appeal decided the following:

A.   The contaminant was not a defect. When determining whether something is a defect in the quality of land, the intended use of the land must be taken into account. V never knew that P intended that the land be used for residential purposes.

B.   Even if the contaminant was a defect, it was a patent, not a latent, defect. It was readily discoverable by P had P exercised reasonable diligence. A physical inspection would have shown the contamination wells.

C.   There may be no duty to bargain in good faith in arms-length transactions involving land. Even if there is, there was no bad faith on the part of V in not informing P of the contamination. V gave P full physical access to the property, allowed soil inspection even when not required under the agreement for sale, and never knew of P’s intended residential use.

D.   A vendor may have a duty to warn a purchaser of dangers on a property posing a risk of physical harm. However, there was no evidence that the contamination rendered use of this property dangerous for industrial purposes.

RESULT

     P’s action was dismissed. The Court did mention that this result did not imply that the V was not liable for part or all of the costs of cleanup once a cleanup was undertaken.

MORAL

Had P inspected the property, it would have known of the contaminant. Had P told V of its intended use, V would probably would have been under a duty to advise P of the contaminant. P played its cards close to its chest and, at the same time, made no investigations. It paid the price for these decisions.