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Environmental Law Article

This article appeared in the November 1998 issue of Canadian Environmental Regulation and Compliance News published by Templegate Information Services Inc. (416) 920-0768.

Ontario Court Gives Clean-up Contractor Priority Over Mortgage
Land Held Valueless Until Remediation Costs Determined

by Donna Shier

Despite a shortfall, a bank was ordered to pay $240,000 of the proceeds of a sale under its mortgage of a former metal plating plant, to the contractor who did the bulk of the clean-up work. The debt to the contractor was incurred by the bankrupt property owner after the bank’s mortgage was registered, but before the bank took over and sold the property. The court found that the property was not marketable in 1989, at the time the clean-up work started. Under Ontario’s Construction Lien Act, a contractor’s lien arises when the work is commenced.

In Park Contractors Inc. v. Royal Bank, Ontario General Division Judge Brockenshire stated that "at the time the remedial work commenced, before the extent of the work needed was known or the cost was known, the property had no actual value."

Under the Construction Lien Act, a mortgage registered before a construction lien arises takes priority to the extent of the "actual value of the premises." Judge Brokenshire held that "actual value" in this context means market value. Since a prudent purchaser would be unwilling to buy a contaminated property without knowing the extent of contamination or cost of the clean-up, the market value was zero when the lien arose. The contractor was entitled to priority over the mortgage.

Judge Brockenshire noted that Ontario’s Court of Appeal has accepted the principle that clean-up costs can be considered when assessing the value of property. However, in this case the clean-up costs were unknown at the time the lien arose.

The judge considered the "value in use" argument - namely, that property that is currently in use has a value to its owner despite contamination. In Park Contractors, the judge rejected the "value in use" argument, since, when the lien arose, the company had ceased operations, was trying to sell the property and commissioned the clean-up to facilitate the sale.

Park Contractors should not be taken to mean that the courts will always consider contaminated land to be worthless until cost of clean-up is ascertained. For example, where contamination is confined to the property, and an existing industrial use is lawful, the courts have refused to find that the property is worthless. [See Court of Appeal Upholds Tony’s Broadloom Decision, CERCN page 1024, April 1997]. For some valuation purposes the courts may also consider the value of a business on the site separately from the value of the real estate.

To comment, call Barry Spiegel in Toronto at (416) 863-0711 or send email to

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