Tuesday, October 18, 2011

Environmental Liability in Ontario Steps Backward

Ontario’s environmental industry is still processing a startling decision on a massive property contamination case made earlier this month.
On October 7, 2011 the Ontario Court of Appeal overturned a July 2010 decision by the Ontario Superior Court in Smith vs Inco Limited[1]. The 2010 decision awarded $36,000,000 in damages to 7000 property owners in Port Colborne, Ontario, due to soil contamination caused by nickel particles emitted from Inco’s refinery, over a 66 year period up to 1985. It was speculated that the original July 2010 decision would open the door in Canada (or at least Ontario) to American-style environmental class-action lawsuits popularized in movies like: Erin Brockovich starring Julia Roberts, and Civil Action with John Travolta.

In the Court’s decision it said that the case failed to prove that Inco’s refinery dust negatively impacted the values of the properties or the owner’s ability to use their properties.  The Court also found that the case did not show that the contamination posed a risk to the health or safety of residents.
The implications of this decision are potentially far-reaching when you consider so many industrial activities operate near residential areas.
There are several layers of irony in this story.
1.   Smelting is a “Potentially Contaminating Activity” highlighted by the Ministry of Environment (MOE) earlier this year in amendments to Ontario’s Brownfield legislation, O. Reg 153/04. Legislation that is designed to protect human health and the health of our environment.
2.   The pollutant in question, nickel refinery dust, is considered a human carcinogen by the US EPA, and EPA cites health studies from Port Colborne to support their conclusions! “Evidence of carcinogenicity includes a consistency of findings across different countries (Clydach, Wales; Copper Cliff, Ontario; Port Colborne, Ontario; Kristiansand, Norway; and Huntington, WV)”[2]

Inco (now owned by Vale Ltd.) is however not gloating over what must be viewed as a huge victory. The company's website has no posted announcements on the case.

Wednesday, October 5, 2011

Need a Phase I or II ESA? ---- Read this first (Part 2)


In my last post we saw how Ontario’s new “Brownfield” legislation has resulted in:
  1. Phase I ESA’s costing more and taking longer.
  2. More Phase II’s ESA being recommended.
  3. Property owners receiving copies of Phase I & II’s, regardless of who orders them.
  4. 65% of pollutants having more stringent guidelines, including the most common offenders (wastes from motor oil, gasoline and dry cleaning solvents).
You can refer back to September 14th blog for details.

Additional implications of the new regulations are as follows:

5. More sites will not 'pass the test'.
The new Ministry of Environment (MOE) regulations on how Phase I's are prepared will result in more Phase II's ESA being recommended.  Also the new regulations have imposed lower thresholds for the most common pollutants.
Result: More sites will be deemed ‘contaminated’.

6. Developing a property requires a Record of Site Condition (RSC).
While this is not new news perse, in order to get a RSC approved the supporting Environment Site Assessments (Phase I and II) and remediation reports (if applicable) will have to meet the MOE standard. Therefore Phase I and II’s done to the CSA standard will not be accepted.
Result:  Getting approval for a RSC (necessary condition on most commercial deals and required by municipalities to approve redevelopment) will be more difficult.

7. Sites not being redeveloped can use the CSA-standards for Phase I and II ESA’s...
...BUT most financial institutions have adopted the new (stricter) MOE-standards into their underwriting guidelines*.
*Many bankers I have talked to indicate that in some cases (ie. mortgage refinance on a site with ‘lower risk’ activities) the CSA standard will be permitted. Tip: check with the bank first before ordering a report.





Wednesday, September 14, 2011

Need a Phase I or II ESA? ---- Read this first (Part 1).

For those in the commercial real estate industry, our business has been changed by recent amendments to Ontario’s "Brownfield" legislation.
When I do presentations I often get asked:  “How does the new law impact me and my clients?”
Over the next two posts I will present my list of - What you need to know about Ontario’s new environmental regulations.  While this is not an exhaustive list, it is my goal to highlight the changes and implications of new regulations so you will be able to respond appropriately to any environmental situation. 

1. Phase I ESA's will take longer and cost more.
The new regulations require investigating the complete historical uses of all properties within 250 metres (instead of the old CSA standard of investigating just the immediate neighbours). 
Result: Better quality reports industry-wide, but plan on 3 – 4 weeks and $3000 - $4000 on per report. Beware: a $2000 Phase 1 will probably not meet the new MOE standards.  

2. More Phase II ESA's will be required.

The inclusion of Potentially Contaminating Activities (PCA) in the new regulations mean that if an industrial activity has ever occurred at the subject property, the soil and groundwater will likely have to be tested for contamination. (See my blog on May 4, 2011 for the complete list of PCA’s).
Result: More properties will fail for contamination by virtue of more Phase II’s being completed.  In addition if the Phase II is a condition for a transaction (purchase or refinance), remember it will take 4 – 6 weeks and will cost $8,000 - $10,000 on average.

3. Property owners receive a copy of Phase I & II ESA reports.
Result: Regardless of who orders the report(s) this amendment means property owners will have to be more forthcoming about the environmental conditions of their site(s).

4. More stringent guidelines for 65% of pollutants.

Included in this list are common contaminants related to gas stations, automotive repair and dry cleaning activities.  
Result:  For some properties these new numbers will be very difficult, if not impossible, to achieve. For those sites only option for obtaining a Record of Site Condition from the MOE will be through a Risk Assessment. (Remember: a Record of Site Condition is required by most banks as evidence that a site is “clean”)
If you are going the Risk Assessment route be aware they can take many months to complete (forget the 90-day close), and there are no guarantees the MOE will accept a Record of Site Condition based on a Risk Assessment.
Although we are only a weeks into the new regulatory regime, this could prove to be a real bottle-neck for one of the Ministry of Environment’s stated goals for the new regulations: streamlining processes related to remediating contaminated sites.
More on Risk Assessments and other important regulatory changes in next week’s blog.

Friday, July 15, 2011

Is a Record of Site Condition based on a Risk Assessments risky? Toronto, Ontario

Consider this situation: Your client wants to develop a large real estate parcel in a trendy transition neighbourhood in Toronto.  The problem is the Phase II Environmental Site Assessment has determined the site is contaminated with a mix of petroleum hydrocarbons, PCBs, dioxins, and heavy metals. On top of that the estimated costs to remediate, if done, would kill the project.

Dead deal, right? Not necessary.


Brownfield site in Toronto

For sites such as these a Modified Generic Risk Assessment (MGRA) may be an option.  Risk Assessments (RA), which are detailed studies of the risks to human health and the ecology caused by exposure to contaminants at a particular site, have been around for years.  However amendments to Ontario Regulation 153/04, include the new MGRA model, which promises to be a quicker and more cost-effective approach to getting a Record of Site Condition (necessary for redevelopment) on a contaminated property.

Risk Assessments are detailed studies of the risks to human health and the surrounding ecology caused by exposure to environmental contamination at a site.

While this is good news, the Ministry of Environment reserves the right to place a Certificate of Property Use (CPU) on a Record of Site Condition based on any risk assessment. CPU’s are limitations on how a site can be used (in order to protect human health) and are registered on title. An example of a CPU would be a provision prohibiting basements if it is deemed there is a risk of noxious vapour intrusion from contaminates in the soil. 
Certificates of Property Use can limit how a site can be developed and are registered on title.
So are Risk Assessments, risky? While it is true both traditional RA’s and MGRA’s are somewhat subjective, the strength of any Risk Assessment ultimately lies in the ability of the Risk Assessor, who does the analysis of the scientific data and submits the report.

Consider though: The hypothetical real estate parcel I referenced above does exist: It is the 80-acre West Don Lands site in downtown Toronto, which is currently being developed as the Athletes’ Village for the 2015 Pan Am Games. After the Games this site will ultimately have 6,000 new residential units and 23 acres of parks and public space, all on environmentally contaminated land, but with on-going risk management measures in place.

It’s a brave new world.

Toronto's West Don Lands - 2015


Next 2 blogs: Things to remember about Ontario’s new environmental legislation

Monday, June 20, 2011

Greenfields become Brownfields. Increased Costs for Real Estate development in Toronto, GTA and Ontario.

If you have read any of my recent articles on amendments to Ontario's environmental legislation, O. Reg. 153/04, you know that the due diligence process for Phase 1 environmental site assessments will become more complicated on July 1st.

Phase 1 ESA’s will now investigate at larger 'Phase 1 Study Area', and consider more activities that could contaminate the subject property. This is going to result in more Phase 2 environmental site assessments being recommended, to test the soil and groundwater for environmental contamination. While this will cost property owners more time and money, of greater concern is whether the property will pass or fail the lab tests.

In the commercial real estate world timelines can be, and often are, adjusted. And an extra $10,000 or $15,000 in fees usually won't upset a multi-million dollar transaction. But if the site is found to be contaminated this is usually a 'deal killer'.

Environmental contamination is a ‘Deal Killer’

One of the goals of the new legislation is to recognize developments in science regarding the impacts of pollutants on humans and the surrounding ecology. 65% of pollutants will thus have more stringent numbers in the new regs. And some of the most common offenders – chlorinated solvents, oils and gas - will see significant reductions in their limits.

Therefore after July 1st we will see many more properties being tested, and more properties failing, under the new stricter guidelines. Whether you live in Oshawa, Kitchener, Peterborough, Barrie, or Mississauga - it's assured you will have more contaminated sites.

There is however hope for some contaminated sites, often referred to as ‘Brownfields’. The Ministry of Environment has introduced a new "Modified Generic Risk Assessment" (MGRA) model, which will allow some contaminated sites to be deemed acceptable for redevelopment (which is one of the stated goals of the new legislation: streamlining the process for redeveloping Brownfield sites).


Next week: Are Risk Assessments risky?

Monday, June 13, 2011

Phase I and II Environmental Site Assessments, Toronto and beyond. Why are they costing more?

In the last blog we saw that whether you're in Toronto, London, Ottawa or even Sault Ste. Marie after July 1, 2011 a typical Phase 1 environmental site assessment will cost commercial real estate clients more money and take longer to complete.
Leaking drums at a GTA site

While many commercial real estate professionals are upset with this, there are even more significant changes that could make a 60 or 90-day close on commercial / industrial properties a thing of the past.


Amendments to Ontario’s regulation, O. Reg 153/04, Records of Site Condition, make reference to a seemingly innocuous term called "potentially contaminating activities" (PCA). PCA's are industrial activities which produce pollutants that could contaminate a property, and the Ministry of Environment (MOE) has indentified 71 different PCA's.  Examples include paint manufacturing, metal working, fuel storage, etc. (See May 4, 2011 blog for the complete PCA list).


"Brownfield" site, Toronto
 PCA's are actually well known in the environmental engineering field, but the new regulations require that when a PCA is found at a site currently or anytime in the past, then the Phase 1 report must recommend that a Phase II environmental site assessment be performed to test the soil and groundwater for contamination.

In essence the MOE is taking decision-making out of the hands of the engineer and requiring them to recommend lab testing to ensure the site is clean. While this attempt to remove human error or human influence from the process may be well-intended, the resulting financial implications for commercial deals will be significant.

More commercial and industrial properties will require a Phase II ESA and have lab results confirm the site is “clean”, in order for a transaction to be approved by a bank or finance company.

The costs of a Phase II vary with each property but here is a general rule of thumb: a Phase II environmental site assessment done on a 1.5 acre industrial property with a 10,000 square-foot building will run approximately $10,000-$15,000. That’s not too bad but the problem is the extra time it will take to complete the Phase II ESA: 4 - 6 weeks.

However having to get a Phase II ESA is not the biggest concern. More important is whether the site passes the lab tests for environmental contamination. In the next blog we will discuss the implications of Phase II’s and why more sites will fail under the new guidelines.

Next week: How Greenfields become Brownfields.

Monday, June 6, 2011

Why Phase 1 ESA's will take longer and will cost more in Ontario

As we discussed in the last blog Ontario’s new environmental legislation, Ontario Regulation 153/04, Records of Site Condition, will become law on July 1st.

One of the main goals of the new legislation is to "streamline" the site assessment process, thereby allowing contaminated properties to be remediated more efficiently.

However for Phase 1 Environmental Site Assessments (ESA) “streamline” does not mean “quicker” or “less expensive”. Read on.

Under the new regulations the QP (“Qualified Person”) who prepares the report must consider the impact of all properties within a 250 metre radius of the subject, what is known as "Phase One Study Area". While it has always been within a QP’s discretion to investigate any property near the subject, in practice most Phase 1’s only considered the immediate neighbours.

And given that the QP must research both the current and historical usage of every property within 250 metres, this alone will significantly increase the time and cost of a Phase 1 ESA. Regardless of whether it is a major Brownfield cleanup in Hamilton or a simple commercial condo sale in Toronto.  

A recent survey of leading environmental engineering firms in Ontario indicated the average Phase 1 ESA will take 10 days longer to prepare, and will see costs increase from an average price of $3200 to over $5000 (in some cases firms are simply doubling their prices).   

Next blog we will look at an even greater impact on environmental costs for a typical commercial/industrial transaction: “Potentially Contaminating Activities”.

Monday, May 30, 2011

Ontario's new environmental legislation: Implications for Commercial Real Estate Professionals from Toronto to Thunder Bay

On July 1st Ontario's new environmental legislation, Ontario Regulation 153/04, Records of Site Condition, will become law.

So what is the impact for commercial real estate professionals?

At first glance it would seem 'not much', but changes to the legislation could significantly impact both the cost and time it takes to close even a simple commercial deal.  Whether you are redeveloping a Brownfield site in Kitchener, selling an industrial building in Toronto or just getting refinancing on commercial office condo in Ottawa, the new environmental regulations will effect your deal. 

Over the next month, leading up to July 1st, I will cut through the 147-page O. Reg 153/04 and highlight important changes, so you can be better prepared to advise your clients. Today we will look at changes to the Phase 1 Environmental Site Assessment (ESA).

First we need to clarify some terminology which should be familiar to most readers but is still very important.


A Phase 1 ESA is a report prepared by a “Qualified Person” (QP), typically an engineer, which investigates a property to determine the “likelihood” of environmental contamination. No analytical testing is done for the Phase 1.

The current accepted Phase 1 ESA standard is the CSA Z768-01, however after July 1, 2011, if you require a “Record of Site Condition” to be filed the new O. Reg. 153/04 standard must be used.

A Record of Site Condition (RSC), is a legal a statement filed by a QP to protect property owners from environmental cleanup orders and it must be filed whenever a property changes to a ‘more sensitive use’.  An example of ‘sensitive use’ is redeveloping a former gas station site for a condominium. The QP uses a Phase 1 and (often) a Phase 2 ESA to support the filing of the RSC.

So what if you site is not changing its use and do not require a RSC? Eg. A sale or refinance of a commercial / industrial building with no plans for redevelopment.

Are you legally required to use the new Phase 1 standard? No.
Will a lender require you to use the new standard? Maybe.

We all know banks and lenders have their own underwriting policies, so don’t be surprised if they require the Phase 1 ESA for your site be done to the new O. Reg. 153/04 standard.

However if your client’s property is not being redeveloped, the question you should ask the lender is “Will you accept the CSA standard for a Phase 1?”.  If the answer is “No”, ask them “Why not?”.

The worst they can say is “No, use the new regulations”. But if they say “Yes, use the CSA standard” you may save your client thousands of dollars and at least two weeks in time to prepare a Phase 1 ESA.  

Next Blog: Why the new regulations will mean Phase 1 ESA’s will take longer and will cost more.

Tuesday, May 17, 2011

Mould Control in Toronto, GTA and all of Ontario


Microscopic Mould
Gone are the days when Mould (or Mold - both spellings are acceptable) was simply the ‘nasty black stuff’ growing on a wall that was cleaned up with some bleach.  Today we are more aware of indoor air quality and that exposure to mould can cause a wide variety of illnesses. Symptoms such as allergenic reactions or asthma attacks, can progress into severe and chronic ailments with prolonged exposure. 
It doesn't matter where you live: Mississauga, Waterloo or Barrie, mould is everywhere. It’s in the air we breathe and grows on virtually any surface. In fact there are over 1,000 species of mold in Canada. So what can you do to protect yourself from mould and maintain reasonable indoor air quality?
'Black' Mould in house in Toronto
Control the Moisture, Control the Mould.
Mould requires water to grow, so it is important to prevent moisture problems in buildings. When poor ventilation is mixed with high humidity, often caused by leaking roofs and basements, the right environment for mould growth is created. Under these conditions visible mould can appear in 24 hours and will flourish, if left unchecked, eventually becoming airborne spores. 

"Grow Op" home in Markham
 What do you do if you see or suspect you have mould? It is recommended you get a qualified mold inspector to do an assessment. Many home owners have unwittingly made their mould situation worst by attempt to remedy the problem themselves.  
The inspector will test and safely remove the mould, while keeping everything outside the contamination area free from spores.  Indoor air quality testing performed before and after the clean-up, will confirm the mould has been effectively removed.


Thanks to Ross Sullivan of Mold.ca for contributing to this blog.  Mold.ca is Canada's leading mold inspection and removal firm.

Wednesday, May 4, 2011

What are "Potentially Contaminating Activities" for Phase I Environmental Site Assessments, Ontario?

Ontario Ministry of Environment's new Brownfield legislation becomes law July 1, 2011.  Of interest is the section called "Potentially Contaminating Activities" (PCA). PCA's refer to a use or activity "that is occurring or has occurred" at the "Phase 1 Property" or within the greater "Phase 1 Study Area" (250 metre radius from the Phase 1 site).
Phase 1 Study Area. Source: Ministry of Environment
Simply put a PCA is an activity which is more likely to cause soil and groundwater contamination (ie. gas station), vs more benign activities (office).

 If a PCA is found to have occured at the Phase 1 Property, during a Phase 1 Environmental Site Assessment, then the report must recommend a Phase II ESA be conducted (ie. testing of the soil and groundwater). This will undoubtably mean more time, more money for a Phase 1 ESA. This coupled with stricter guidelines for most (65%) contaminants, means there will be a higher probability of a site being found to be contaminated during the Phase II Environmental Site Assessment investigation.


If a PCA is found off the site but within the 250 meter Phase 1 Study Area, the investigator (known as "Qualified Person" or "QP") still has the discretion to recommend a Phase II, but it is not required.


So what are these "Potentially Contaminating Activities"? The new regulations identify 71 PCA's, which are unfortunately buried within the lengthy Ontario Regulation 153/04 Records of Site Conditions - Part XV.1 of the Act. For ease of reference I have post the list below.


Remember just because a property has or had a PCA does NOT mean it is contaminated. But a Phase II Environmental Site Assessment will have to be conducted before a lender will sign-off on financing.


I've highlighted the "common offenders" for ease of reference.

1Abrasive blasting24Plastics (including Fibreglass) Manufacturing, Processing, Storage and Disposal48Mining, Smelting or Refining; Ore Processing; Tailings Storage
2Airstrips or Hangars Operation25Rubber Manufacturing or Processing49Mining of Coal
3Antifreeze Manufacturing, Processing, Use, Bulk Storage, Handling, Disposal or Recycling26Soap or Detergent Manufacturing, Processing or Bulk Storage50Military Exercises
4Laboratory or Chemical Analysis27Solvent Manufacturing, Processing, Use, Storage, Handling or Disposal51Ordnance Use, Demolition or Disposal
5Asphalt or Bitumen Manufacture or Bulk Storage28Drum and Barrel or Tank Reconditioning or Recycling52De-icing and Antifreeze Agent Manufacturing, Processing, Use, Storage, Handling or Disposal
6Battery Manufacturing, Recycling or Disposal29Dry Cleaning (where chemicals are used)53Salt Manufacturing, Processing, Use, Storage, Handling or Disposal
7Boat Building and Maintenance30Electrical Equipment or Transformer Manufacturing, Processing, or Use54Oil or Gas Refining and Storage
8Concrete, Cement or Lime Manufacturing31Electricity Generation or Transformation or Power Stations55Oil Production
9Putrescible Materials Handling, Disposal or Recycling Cemeteries32Electronic or Computer Equipment Manufacturing or Reconditioning56Discharge of Brine
9Putrescible Materials Handling, Disposal or Recycling33Explosives or Ammunition Manufacturing, Production, Use, Bulk Storage, Demolition or Disposal57Heating Oil Manufacturing, Processing, Use, Storage, Handling or Disposal
10Chemical Manufacturing, Processing, Use, Storage, Handling or Disposal34Fire Training58Motor Vehicle Operation or Maintenance
11Acid or Alkali Manufacturing, Processing, Use, Storage, Handling or Disposal35Fire Retardant Manufacturing, Processing, Use, Storage, Handling or Disposal59Port Activities, including Operation and Maintenance of Wharves and Docks
12Adhesives or Resins Manufacturing, Processing, Use, Storage, Handling or Disposal36Foundry Operations60Printing and Duplicating
13Cosmetics Manufacturing, Processing, Use, Bulk Storage, Handling or Disposal37Fuel Storage and Dispensing61Pulp, Paper and Paperboard Manufacturing and Processing
14Dye Manufacturing, Processing, Use, Storage, Handling or Disposal38Coal Gasification62Salvage or Junk Yard Operation or both
15Fertilizer Manufacturing, Processing, Use, Bulk Storage, Handling or Disposal39Gas Manufacturing, Processing and Storage63Scrap Metal Recovery and Auto Wrecking
16Flocculants Manufacturing, Processing, Use, Storage, Handling or Disposal40Ink Manufacturing, Processing or Storage64Sewage Treatment
17Foam or Expanded Foam Manufacturing or Processing41Iron and Steel Manufacturing or Processing65Tanning (and associated trades activities)
18Glass Manufacturing42Coke Oven Operation66Textile Manufacturing or Processing
19Landfilling43Incinerating or other Thermal Processing67Wood Treating, Preservation and Storage
20Paint Manufacturing, Processing, Use, Bulk Storage, Handling or Disposal44Machine Maintenance and Operation, Metal Fabrication68Automotive Repair or Maintenance; Autobody Shop Operation; Vehicle Maintenance and Repair Garages (Auto, bus, truck, railcar, marine, aviation vehicles, etc.)
21Pesticides (including Herbicides, Fungicides and Anti-Fouling Agents) Manufacturing, Processing, Use, Storage, Handling or Disposal45Metal Treatment or Coating69Vehicle Manufacturing and Associated Activities
22Pharmaceutical Manufacturing, Processing or Storage46Metal Plating or Finishing70Waste Disposal or Waste Management — other than the use of biosolids as soil conditioners
23Photographic Processing47Metal Fabrication71Importation of Fill Material of Unknown Quality