Risks your client faces if it buys a former gas station

The owner of a “brownfield” polluted commercial property in British Columbia has lost its bid to have the property considered worthless for tax purposes.

Victory Motors (Abbotsford) Ltd., situated about 80 kilometres east of Vancouver, owns commercial property that was once a gas station. It argued before the courts that no one would buy the former gas station property because of the environmental liability.

As in most of Canada, B.C. property owners can be liable for the cost of cleaning up contaminated soil even if they did not cause the pollution. Commercial general liability policies normally do not cover such costs but some specialty insurers do cover these costs, depending on policy wording.

“Those that buy environmental impairment liability should get historical coverage,” risk manager Darius Delon told Canadian Underwriter earlier.

Most provinces in Canada impose liability for pollution cleanup on “any person who owns, owned or has or had management or control of an undertaking,” Harry Dahme, an environmental lawyer with Gowling WLG, told Canadian underwriter earlier.

The Supreme Court of Canada announced Thursday it will not hear Victory Motors’ appeal from a court ruling that found the property is worth $975,000.

The property is ultimately owned by Ken Jansen. His numbered company bought the firm in 2007 from the daughter of a man who started Victory Motors in the 1940s. The previous owner owed taxes on the property.

A provincial agency assessed the property at $975,000 in 2013. Victor Motors appealed that ruling to the Property Assessment Review Panel, which reduced the assessed value to $375,000. The assessor appealed that to the province’s Property Management Appeal Board, which restored the assessed value to $975,000. Victory Motors appealed that to the Supreme Court of B.C.

In a ruling released in July 2015, Victory Motors (Abbotsford) Ltd. v. British Columbia (Assessor of Area No. 15 – Fraser Valley), the Supreme Court of B.C.  ruled that the appeal board ruling “failed to achieve a result that reflected the property’s fair market value.” The court referred the matter back to the board for reconsideration. But the board’s original determination that the property was worth $975,000 was restored by the B.C. Court of Appeal in a ruling released Aug. 4, 2017.

An engineer had estimated the cost of remediating the property at between $1.5 million and $2 million.

Victory argued no one would buy the property because of the environmental liability. But the B.C. Court of Appeal rejected that argument, in part because Victory currently has paying commercial tenants.

The B.C. Environmental Management Act stipulates that current and former owners or operators of a property can be responsible for cleaning up contaminated sites. The current owner can only be exempt if the property was “innocently acquired,” meaning the site had already been contaminated; that the current owner had “no way of knowing or suspecting that the site was contaminated;” and that the current owner “made all appropriate inquiries of previous ownership and uses of the site.”

Had the Property Management Assessment Board accounted for Victory Motors’ potential pollution clean-up costs, the board would have had to “engage in impermissible speculation,” wrote  Justice David Frankel of the B.C. Court of Appeal in its unanimous 2017 ruling. Concurring were Justice David Harris and Justice Gregory James Fitch.