June 6th - 2008

LEGALBEAT: Oil tank ruled not a latent defect

Goodyear owned a property which was sold to buyer 1 in 1988 and then sold to buyer 2 in 1996 who discovered a buried oil tank. Goodyear was sued by buyer 2.

Goodyear owned a property which was sold to buyer 1 in 1988 and then sold to buyer 2 in 1996 who discovered a buried oil tank. Goodyear was sued by buyer 2.
 
The basic question is this: Can a sophisticated real estate developer who purchases a commercial parcel zoned "light industrial" at a time when no environmental investigations are undertaken and no regulatory guidelines for petroleum hydrocarbons exist, years later, successfully recover from the former owner, who claims no knowledge of the problem, the costs for remediation and bringing the parcel into compliance with the current regulatory guidelines?
 
The judge found that Goodyear knew or ought to have been aware of the existence of the underground petroleum storage tank. The buyer argued that where a vendor knew or ought to have known of a potentially hazardous latent defect, the vendor has a duty to disclose it. A failure to disclose is argued to result in tortious conduct which overrides any contractual exclusions and justifies an award of damages. The judge reviewed several common law cases to decide whether there was a "defect." He found that the tank in and of itself, however, is not the type of defect that would render the property dangerous for human occupation. No evidence was presented that there is any risk to humans who are occupying an area above a buried tank. The existence and non-disclosure of the tank alone does not make Goodyear liable for the remediation required several years later.
 
In Alberta in 1988 there were no regulatory guidelines for buried oil tanks. Coupling the factual knowledge in this case with the climate of commercial real estate practice, which included an absence of attention to environmental concerns, led to the conclusion that the knowledge possessed by Goodyear in 1988 does not contemporaneously translate into knowledge of potential contamination. Accordingly, Goodyear did not have knowledge of a hazard constituting a latent defect.
 
There were no alleged misrepresentations in this case. In order to fit within an exception to the rule of caveat emptor, mere silence by the vendor is not sufficient. If there are no representations, then the purchaser must still show either an act constituting concealment by the vendor, or, even if there is no physical act, that the reason behind the silence was to conceal the true situation from the purchaser. Mere silence cannot found the basis for liability if the purpose of the silence is not concealment.

Home Exchange v Goodyear 2007 ABQB 371

MERV'S COMMENTS
This case represents a good judicial review of defects and disclosures in a commercial setting.

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