What environmental due diligence should I do before buying an Ontario business's assets?
Environmental due diligence is critical in any Ontario asset purchase involving real property, manufacturing equipment, or operations that handle hazardous materials. Under Ontario's Environmental Protection Act and federal legislation, liability for contaminated land can flow to new owners and operators — environmental liability in Ontario does not necessarily stay with the polluter.
Standard environmental due diligence typically includes a Phase I Environmental Site Assessment, which is a historical review of land use records, aerial photos, and site visits to identify potential concerns, and where needed a Phase II assessment involving soil and groundwater sampling to test whether contamination actually exists.
Buyers should also check for any outstanding orders from the Ministry of the Environment, Conservation and Parks, voluntary remediation agreements, or existing environmental liens on the property. In some transactions, the purchase price should reflect known remediation obligations.
If contamination is discovered after purchase, remediation can be expensive, and Ontario regulators have the power to issue orders requiring cleanup regardless of who caused the contamination. Environmental indemnities from the seller and appropriate holdbacks are standard tools for managing this risk.
Key takeaways
- Ontario environmental liability can transfer to new owners — contamination risk is real in asset purchases.
- Phase I and Phase II environmental site assessments are standard pre-closing steps.
- Check for Ministry orders, voluntary remediation agreements, and environmental liens.
- Environmental indemnities and holdbacks in the purchase agreement manage residual risk.