Greening Canada’s Brownfields: A National Framework for Encouraging Redevelopment of Qualifying Brownfields through Removal of Crown Liens and Tax Arrears
Prepared for The Government of Canada and Provincial and Municipal Governments By The National Round Table on the Environment and the Economy and The Canadian Brownfields Network March 2005

Annex 1- National Brownfield Redevelopment Strategy for Canada

Recommendation 1.2

1.2 Remove Liens and Tax Arrears Against Qualifying Brownfield Sites

Recommendation

That the federal and provincial governments jointly develop principles and criteria for removing federal and provincial liens and tax arrears in specific situations.

That the federal and provincial governments amend their applicable bankruptcy and corporations legislation to ensure that when a trustee in bankruptcy quitclaims a property owned by a bankrupt company, then the property vests in the Crown; if the company is incorporated under the Canada Business Corporations Act, then the property vests in the Crown in right of Canada; if the company is provincially incorporated, the property will vest in the province.

Rationale

Removal of liens and tax arrears:

• reduces upfront costs to brownfield developers and provides greater certainty of funds to developers at early project stages (e.g. during purchase negotiations), when it is difficult to obtain regular financial assistance
  
• represents a highly cost-effective approach to delivering financial assistance to brownfields, because it can be delivered for free (except for administration costs) to sites that may be of zero or very little worth to the government in the absence of any redevelopment.

Discussion

Many brownfield properties are delinquent in their property tax payments to the point where they are subject to a municipal tax sale. However, such properties are often difficult to sell, because of deteriorated conditions, known or perceived site contamination, and the anticipated high costs of remediation. If left vacant, these sites typically are prone to vandalism and become a burden to the municipal government. Although many of these sites do not pay municipal taxes, they do draw heavily upon municipal resources in the form of police, fire and inspection services, as well as enforcement and infrastructure maintenance services.

Often, such properties are also encumbered by outstanding Crown liens, both federal and provincial, which cannot be cancelled through a municipal tax sale. The combination of back taxes and Crown liens can render a local redevelopment proposal unfeasible. The prior agreement to remove all or part of these liens could be a deciding factor in the financial viability of a potential brownfield redevelopment project. This form of incentive has been offered in the past on an ad hoc basis by all levels of government. (The actual removal of the lien or tax arrears should not be finalized until the completion of clean-up, to prevent a situation where a lien is forgiven and then no redevelopment takes place.)

Some provinces are considering developing a set of criteria and protocols to qualify brownfield redevelopment projects for removal of all provincial liens in the event of investor interest. This process would be more effective if clear and consistent criteria and processes were established across all governmental jurisdictions, so that developers and purchasers would know whether a particular site, wherever it might be located, was eligible for lien removal. In particular, a federal program to remove liens against affected properties could be linked through a federal-provincial agreement that, among other things, standardizes criteria and protocols.

Changes to federal and provincial legislation are also needed to address the special question of brownfield sites that are caught up in bankruptcy proceedings. The courts have interpreted section 20 of the federal Bankruptcy and Insolvency Act to mean that when a trustee in bankruptcy quitclaims a property, the property returns to the bankrupt company. However, this in effect creates an orphan site, with no entity in control of the property—a development that can have dramatic and even dangerous consequences.

To ensure that there is some entity in control of the property when a trustee in bankruptcy quitclaims a property, the Bankruptcy and Insolvency Act, the Escheats Act and the federal Canada Business Corporations Act, as well as the provincial equivalents, will need to be amended to state that, under these circumstances, the property vests in Her Majesty in right of Canada, or the province, as appropriate. It is also vital that the designated ministry receive the necessary funding to manage these sites until remediation.

(It should be noted that removal of the lien does not release the original debtor from the amount owing to the Crown. Similarly, the vesting of property in the right of the federal or provincial government does not release the original polluter from liability, nor, with proper safeguards, would it create any additional liability for the Crown).

Source:

Cleaning up the Past, Building the Future:
A National Brownfield Redevelopment Strategy for Canada
(National Round Table on the Environment and the Economy, 2003), pp. 20-21