What should an environmental indemnity say when buying a contaminated site?

An environmental indemnity is the seller’s promise to cover the buyer’s losses from contamination at a site. It is a term of the purchase agreement, so its value depends on its wording and on whether the seller can pay. A regulator is not a party to it. This page describes what to settle in the clause. Provincial regimes differ, and Ontario’s Act is used here as the example of how an order is framed.

Define the losses and the starting point

List what the promise covers, such as assessment and cleanup costs, claims by third parties, and the cost of complying with a government order. Fix a baseline so everyone knows what was already there at closing. A phase one assessment, as Ontario’s guidance describes it, reviews the current and past uses of a property, so a pre-closing report can serve as that record.

Decide who controls the cleanup

Say who hires the consultant, what standard the work must meet, and who confirms it is finished. Saskatchewan’s guidance describes a risk-based approach with the stages of notification, assessment, corrective actions and notice of site condition. Tie the indemnity to a defined end point, such as the regulator’s own closure step in your province, so it does not run open-ended.

What an indemnity does not change

Under section 18 of Ontario’s Environmental Protection Act, the Director may, in the circumstances the Act sets out and subject to exceptions elsewhere in it (such as section 168.7, once a record of site condition is filed), order a person who owns or owned, or who has or had management or control of an undertaking or property, to take steps. The section is framed by ownership, management and control. It does not mention a private indemnity. A buyer may therefore face an order and then have to claim from the seller. Ask your lawyer how the two interact in your province.

Check what stands behind the promise

A promise from a seller who has sold the business and moved on is worth what the seller can pay. Ask about a duration, a cap and any exclusions, and consider whether part of the price should be held back. Escrow and holdbacks explains those tools.