- In an asset purchase, liabilities the buyer does not expressly assume generally stay with the seller.
- Environmental matters are a standard part of due diligence on any business purchase that involves owned or leased real property, or operations that use, store, or generate regulated…
Environmental problems — contamination, non-compliant storage, an old order from a regulator nobody closed out — are some of the most expensive surprises in a business purchase. Whether you inherit that exposure depends heavily on environmental liability structure: asset purchase vs share purchase in Ontario, and on the specific property and permits involved.
This isn't a corner you can cut to save time. Environmental liability can attach to whoever owns or operates a property, not just to whoever caused the original problem — which means a buyer can end up responsible for contamination it did not create.
Below is how the two deal structures generally differ, what due diligence typically covers, and the protections buyers use to manage the risk.
The General Rule, and Why Environmental Liability Doesn't Always Follow It
In an asset purchase, liabilities the buyer does not expressly assume generally stay with the seller. In a share purchase, the buyer takes over the corporation and everything historically attached to it, including environmental liability.
Environmental liability complicates that general rule, especially in an asset purchase, because environmental obligations can attach to whoever currently owns or operates a property — regardless of who caused the contamination and regardless of what the purchase agreement says between the buyer and seller. A regulator is not a party to your purchase agreement and is not bound by how you and the seller divided up responsibility between yourselves.
How the Two Structures Typically Compare
| Share Purchase | Asset Purchase | |
|---|---|---|
| Historical contamination on corporation-owned land | Comes with the corporation | Depends on whether the buyer acquires that specific property |
| Environmental permits and approvals | Usually stay with the corporation | May need to be reissued or transferred to the buyer |
| Regulatory orders against the current owner or operator | Follow the corporation | Can attach to a new owner or operator going forward, independent of the purchase agreement |
| Buyer's main protection | Diligence, representations and warranties, indemnities | Diligence, careful property selection, indemnities, consents for permit transfer |
What Environmental Due Diligence Typically Covers
Environmental matters are a standard part of due diligence on any business purchase that involves owned or leased real property, or operations that use, store, or generate regulated substances. A buyer's team typically looks at:
- [ ] Whether the business owns real property, and its history of use
- [ ] Environmental permits, approvals, and compliance orders, current and historical
- [ ] Storage of fuel, chemicals, or other regulated substances on site
- [ ] Any known or suspected contamination, spills, or regulatory complaints
- [ ] Whether an environmental site assessment has ever been done, and what it found
Where the business leases its premises rather than owning them, the landlord's own environmental history and lease obligations also matter — an operator can inherit compliance responsibilities tied to leased space, not just owned land.
Protecting Against Environmental Risk in the Purchase Agreement
- Representations and warranties about the property's environmental condition, permits, and compliance history, backed by a disclosure schedule.
- Indemnities specifically addressing environmental liability, which parties often negotiate separately from the general indemnity because environmental exposure can be open-ended.
- Holdbacks or escrow tied to known or suspected environmental issues, sized to reflect the risk rather than released at the standard time.
- Excluding contaminated property from an asset purchase altogether, where the buyer does not need that specific parcel to run the business.
- Confirming permit transferability early, since some environmental approvals require regulatory consent or reissuance rather than a simple assignment.
Frequently asked questions
If I only buy assets, can I avoid the seller's environmental problems entirely?
Not always. If the assets you're buying include a contaminated property, or if you continue operating in a way that a regulator considers you a responsible party, you can face environmental liability independent of what the purchase agreement says between you and the seller. Careful diligence on the specific property involved is essential.
Does a share purchase always mean I inherit environmental problems?
Generally yes, if the corporation owns or has owned property with environmental issues, since that liability travels with the corporate entity. This is one reason environmental due diligence is treated as its own workstream, separate from general financial and legal diligence, in deals involving industrial, manufacturing, or fuel-handling businesses.
Do I need a professional environmental assessment before buying?
Whether an environmental site assessment makes sense depends on the property's history and use — it's a common step for industrial, manufacturing, and fuel-related businesses, and less often necessary for a retail or office-based business with no history of using regulated substances. Your lawyer can help you decide what level of review fits your specific deal.
Who is responsible if contamination is discovered after closing?
This depends on what the purchase agreement says, what deal structure was used, and what any applicable regulator decides about who the responsible party is. It's a fact-specific question that should be addressed directly in your representations, warranties, and indemnities before closing, not left to be sorted out afterward.
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