Underground Oil Storage Tanks. Should you be concerned?

PROBLEMS WITH UNDERGROUND OIL STORAGE TANKS

 Many homes in the Greater Vancouver area built before 1957 were originally heated with
furnace oil. When natural gas became available, the oil storage tanks, which were
normally located underground in backyards, were filled with sand or capped. However, as
these unused tanks start to corrode and rust, the remaining oil can leak out and flow onto
the rest of the owner’s property, the neighbour’s property, storm sumps and waterways,
resulting in contamination of soil and water. Apart from the negative financial impact on
the market value of the property, the owner can face substantial legal liability under
various statutes and bylaws for such contamination.

The BC Fire Code and by-laws of twelve municipalities (including the City of
Vancouver) all essentially require that out of service underground oil storage tanks
(“UST”) be removed and that all contaminated soil must be removed and replaced with
clean fill.

A very limited exception may be granted by the fire authority where the removal of the
UST is impractical because it is located under a permanent structure or its removal would
endanger the structural integrity of nearby buildings. In that case, the owner would still
have to render the UST “inert” in accordance with “good engineering practices” which
would include arranging, at their own expense, for the remaining oil to be pumped out,
for the tank to be filled with sand and all piping to be capped as well as arrange for the
removal of contaminated soil and replacing it with clean fill. In addition, written
verification of such work must be provided by a licenced contractor to the fire authority.

The responsibility for the removal of the UST and remediating any contamination falls on
the current property owner. The costs of such removal can be expensive depending on
how much remediation work is involved. However, if the UST is ignored and not dealt
with promptly and correctly, the costs can be exponentially more. In one case that was
reported in 2008, an owner of a West Vancouver home, who bought the home in 2000 not
apparently aware that there was a buried UST, had to spend close to $160,000 to remove
5,000 liters of contaminated fuel from a leaky home-heating UST that had not been used
in 25 years! Such cases are rare but it does highlight the need to conduct due diligence
when buying a home that may have an unused UST.

In addition to the BC Fire Code and municipal by-law requirements, the owner may also
be subject to the Environmental Management Act of BC if the concentration of the
contaminants present in the soil or groundwater exceeds the allowable limits prescribed
for residential properties and therefore meets the definition of a “contaminated site”. In
that event, the owner can be ordered to undertake remediation of the property and
neighbouring properties if the contamination has spread. It may be possible for the owner
to recover some of the costs incurred from more culpable previous owners through a
“cost recovery action” pursuant to the Environmental Management Act but only if they
can be found and have the resources to pay. An owner or former owner may also be
found liable under common law nuisance for failing to take steps to prevent seepage of
oil to neighbouring properties.

What are the Seller’s obligations?

The Seller normally will provide a prospective buyer with the Property Disclosure
Statement (“PDS”) that requires disclosure of a number of potential defects, including the
presence of an UST. If the Seller declares that the property does not to their knowledge
contain an UST and/or is not contaminated, which later proves incorrect, the Seller can be
liable for negligent misstatement. Moreover, if the PDS is expressly stated to form part of
the Contract and there is an unqualified statement that there is no UST then this becomes
an actual warranty so that if an UST is discovered on the property the Seller will be liable
for breach of contract. Similarly, if the Seller states expressly in the Contract that there is
no contamination at the property, the Seller will be contractually liable to the Buyer if
contamination is discovered. As well the courts have held that Sellers have a duty to
disclose a latent defect that could be dangerous or a hazard to human health and failure to
do so may well make them liable to the Buyer for damages sustained as a result of their
failure to warn.

In summary, if there is an UST, then the Seller should be advised to disclose this fact to
the Buyer and ensure their representations are accurate. The Seller can then go ahead and
arrange for a qualified tank removal contractor to remove the UST and clean up any
contamination in accordance with all permits and applicable statutes, bylaws and BC Fire
Code and provide sufficient written proof to the Buyer prior to completion. Alternatively,
if the Seller does not have the money to do this, they could try and negotiate a price
reduction in exchange for a release and indemnity from the Buyer with respect to the
UST and remediation of any contamination. However, the Seller can still remain liable
under the EMA and the Buyer may not be able to agree to this because of the
requirements of their insurer and lender, who will want the UST and any resultant
contamination issues dealt with prior to completion before funds are committed.

What can Buyers do to protect themselves?

If there is a suspicion that there may be an UST and the Seller will not or can not confirm
either way, the Buyer should be advised to make the offer subject to a satisfactory
inspection that satisfies the Buyer there is no UST and that the property is not a
contaminated site. It would be prudent to engage the services of a specialized UST
inspector to conduct a magnetic survey to detect an UST and then, if located, the integrity
of the tank can be examined and surrounding oil can be checked for the presence of
contaminants. The Buyer should also put in another condition precedent into the
Contract that, if there is an UST, the offer is subject to the Seller arranging, at their own
expense, for the UST to be drained and removed and for the soil and groundwater to be
assessed for contamination and, if so contaminated, the Seller will ensure the soil and
groundwater is fully remediated in compliance with all applicable statute, bylaw and BC
Fire Code requirements. The contract should also provide that it is a fundamental term of
the contract that all the work will be done by a qualified tank removal contractor and that
the Seller shall provide to the Buyer on or before the completion date all necessary
written certificates and reports from the tank removal contractor and the fire authority
that all work was completed in compliance with the applicable statutes, bylaws and BC
Fire Code.

A Buyer should be strongly advised, even in the face of competing offers for a property,
to not remove any conditions without the UST and remediation work having been
completed properly by the Seller. Similarly, the Buyer should not agree to take on the
responsibility of the removal of the UST and the remediation of any contamination in
exchange for a price reduction without fully realizing the potential liability that would
ensue upon becoming the new owner.
 
 

The information you obtain at this site is not, nor is it intended to be, legal advice. You
should consult a lawyer for individual advice regarding your own situation.
Copyright © 2011 by Spagnuolo & Company Real Estate Lawyers. All rights reserved.
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