Beware of Oil Tanks

In today’s age of natural gas and electricity, we don’t often think about the implications of home heating oil tanks and the contamination that they can cause to residential properties. We haven’t been too concerned about the implications for selling our homes. 

A recent decision of the B.C. Supreme Court, however, shows that you and your clients should be concerned about residential fuel tanks when buying and selling property because the cost implications can be in hundreds of thousands of dollars. 

The case in question concerns a series of transactions. The Colbecks purchased a property in September 1998. Their offer to purchase was subject to a satisfactory building inspection. The building inspector reported that there was evidence of a buried oil tank because there was a vent and fill pipe. He recommended locating the tank and testing for oil products. 

The Colbecks did not act on the inspector’s recommendation until after they decided to sell the property in 2000. At that time, the Colbecks retained a contractor to deal with the tank. The contractor said that he pumped out 580 gallons of water, oil and sludge, cleaned the tank and filled the tank with sand for $900.

Ms. Aldred bought the property in 2000. In negotiating the contract, the Colbecks advised Ms. Aldred about the inspection two years earlier and the work that they had completed which meant that no additional inspection would be required. Ms. Aldred was given a copy of the 1998 inspection report.

In 2007, Ms. Aldred decided to sell the property and signed a residential property disclosure statement answering “No” to the question: “Are you aware of any underground oil storage tanks on the property?”.

The following March she signed a contract of purchase and sale with a new purchaser, and her realtor advised her to check the property’s disclosure statement regarding the oil tank. When she hired a contractor to inspect the property, he located a tank at the same location that had been identified by the inspection report.

As a result, the contract of purchase and sale of the property was amended to make Ms. Aldred responsible for removing the tank and dealing with any contamination arising from it. The estimate she obtained to remove the tank and remediate the contamination was for $60,000. Unfortunately, the total bill for cleaning up the contamination was over $200,000. 

Ms. Aldred sued the Colbecks for negligently misrepresenting the condition of the property, bringing her suit under the B.C. Environmental Management Act (the cost recovery action).

Although the Court found that the Colbecks did not tell Ms. Aldred that the tank had been removed, the Court did find that the reasonable meaning to be accorded to the Colbecks’ statement that the tank had been “decommissioned,” and the meaning they intended to convey, was that the tank had not damaged the property. That representation was incorrect. 

The Colbecks had contacted the appropriate municipal authority, which was the local Fire Department, and followed the recommendation concerning the decommissioning of the tank by retaining a person approved by the Fire Department.

The Court did not agree with the Colbecks that what they had done was sufficient. The Court found that the cost and time it was said to have taken to do the work (one day) suggested the work done was inappropriate. In other words, the description of the work, the small amount of time taken and the price charged should have raised a suspicion that the work was not properly done or not done at all. 

In addition, there was no evidence that the Colbecks had inquired whether any testing had been done for leaks from the tank and contamination into the surrounding soil and groundwater. This was despite some previous experience of the Colbecks where they had completed remediation work for a leaking tank.

The Court found the Colbecks liable for negligent misrepresentation. The Court also found that the Colbecks were liable under the cost recovery provisions of the Environmental Management Act.

In particular, the Court concluded the Colbecks did not undertake all appropriate inquiries, consistent with good commercial customary practice at the time, in order to fall within the “innocent purchaser” exemption under the Environmental Management Act.

Rather, the Court found that the Colbecks were warned about the possible problems in the building inspection report — about the presence of an oil tank — and did nothing to avoid that or deal with it. 

Further, the failure to examine the state of the tank during the two years that the Colbecks owned the home, during which time the Court found the leakage from the tank must have continued, suggested that the Colbecks contributed to the contamination of the site. 

The Colbecks did not succeed on the doctrine of caveat emptor (buyer beware). Ms. Aldred’s questions about the property and the Colbecks’ statements that the tank had been dealt with negated this argument.

The Colbecks were found to be solely responsible for the remediation of the property. The Court left open the question of whether the Colbecks could pursue prior owners for contribution.

On the question of what Ms. Aldred recovered, the Court found that she could recover $6,000 in losses incurred in selling a property in order to acquire the Colbeck property. The Court declined to award Ms. Aldred damages for:

• loss in value of the property (because there was no evidence of loss in value);
• losses as a consequence of the delay in selling the property due to the contamination, such as property taxes, utility costs and vacant home insurance (because those losses were “too remote”);
• finance costs; and
• general damages for discomfort, disappointment, anxiety and frustration.

The Court also found that Ms. Aldred was entitled to recover from the Colbecks the costs of remediating the contamination. However, since Ms. Aldred was now engaged in ongoing litigation with the contractor she hired to remediate the property, the Court did not discuss the quantification of these costs. Rather, the parties essentially agreed to explore the “reasonable cost” of remediating the site as part of Ms. Aldred’s litigation against her remediation contractor. cce