Environmental Indemnity in Commercial Leases: How to Protect Your Auto Repair Shop

Why Environmental Liability Is a Critical Issue for Auto Repair Shop Leases

Properties previously used for auto repair, gas stations, or industrial purposes often carry contamination from fuel, oil, solvents, or heavy metals. When you lease one of these properties, you may inherit liability for existing contamination even if you did not cause it. Provincial environmental legislation in Canada, including Ontario's Environmental Protection Act, allows regulators to pursue current occupants for contamination cleanup costs. Those costs can reach hundreds of thousands or millions of dollars. Understanding environmental indemnity before signing your lease is one of the most important steps you can take as a new shop owner.

Phase I and Phase II Environmental Site Assessments

A Phase I Environmental Site Assessment (ESA) reviews the history of a property through records, interviews, and a site visit. It identifies recognized environmental conditions, meaning past or present land uses that could have caused contamination. A Phase I does not involve soil or water testing. If Phase I identifies concerns, a Phase II ESA involves physical sampling of soil and groundwater. Phase II testing confirms whether contamination is present and at what levels. As a prospective tenant, you have the right to request a copy of any existing ESA and to conduct your own assessment if none exists. A responsible landlord will not object to this request.

Environmental Protections to Negotiate in Your Commercial Lease

• Landlord indemnity for all pre-existing contamination discovered during or after the tenancy
• Right to conduct or commission a Phase I ESA before lease execution at no cost to you
• Right to conduct a Phase II ESA if Phase I identifies recognized environmental conditions
• Baseline environmental condition report establishing the confirmed state of the property at lease commencement
• Cap on tenant liability for contamination caused during tenancy, limited to contamination the tenant can demonstrate it actually caused
• Landlord obligation to remediate any pre-existing contamination within a defined and enforceable timeline
• Right to terminate the lease without penalty if contamination above agreed thresholds is confirmed
• Landlord notification obligation if they become aware of contamination on or adjacent to the property at any point during the tenancy

Operating Your Shop Without Creating New Environmental Liability

Even with strong lease protections, you must manage your own environmental practices carefully. Any contamination you create during your tenancy is your liability. Install and maintain your oil/water interceptor properly. Use licensed waste haulers for used oil, antifreeze, and solvents. Report any significant spills immediately to the appropriate provincial authority. Maintain written records of all hazardous waste disposal. When your lease ends, conduct a closing environmental assessment to document the condition of the property. This protects you from claims that contamination you did not cause was attributed to your period of occupancy.

Frequently Asked Questions