Anonymised, illustrative composite. The environmental compliance representation had a twelve-month survival period, negotiated as generous at the time. The contamination was found in month twenty-six.
At a glance
A fund acquired a mid-sized industrial manufacturing business. The purchase agreement's survival period structure was negotiated in the ordinary way: general representations survived 12 months, an environmental and regulatory compliance representation survived 18 months, and tax representations survived to the applicable limitation period.
At the time, the buy-side team treated the 18-month compliance window as generous — longer than the general 12-month period, and long enough, on the assumption of the day, to catch anything material that pre-closing operations had left behind.
A negotiated survival period is enforceable at all only because Ontario law lets it be. Treadstonelaw's guidance on share purchase agreements explains the statutory basis: “the Limitations Act, 2002 normally overrides an agreement that tries to change a limitation period, but section 22(5) lets parties to a business agreement — one where none of the parties is a consumer — vary or exclude the basic two-year period.” That is accurate, and it is precisely what makes the survival-period negotiation matter so much: the buyer is not falling back on a default statutory clock once the contractual period runs out. The parties bargained the clock itself, and s.22(5) lets that bargain stand exactly as written — including against the buyer, once it runs out. Two details are worth pinning, because a survival clause drafted to “the applicable limitation period” runs into both. The general rule is s.22(1): a limitation period “applies despite any agreement to vary or exclude it, subject only to the exceptions in subsections (2) to (6).” The business-agreement exception in s.22(5) then permits variation or exclusion of any limitation period “other than one established by section 15” — the fifteen-year ultimate period, which parties may shorten but may suspend or extend only where the claim has already been discovered. And “business agreement” is defined not in s.22(5) but in s.22(6), as “an agreement made by parties none of whom is a consumer as defined in the Consumer Protection Act, 2002.” So the parties own the two-year clock outright, and own the fifteen-year ceiling only downwards.
Twenty-six months after closing, a routine environmental assessment ahead of a planned facility expansion turned up soil contamination on a portion of the site, with historical records pointing clearly to pre-closing industrial activity as the source. An independent remediation estimate put the cost at roughly $310,000.
The representation that would have covered this — the environmental and regulatory compliance representation — had an 18-month survival period. The contamination surfaced at month 26, fourteen months after that clock had already run out. As treadstonelaw's guidance on survival-period drafting frames the underlying issue: “General representations about contracts, employees, and operations are usually subject to a shorter, negotiated survival period,” while tax representations are “frequently given a longer survival period tied to how long the Canada Revenue Agency can go back and reassess the corporation for prior tax years — since a tax problem from before closing may not surface until well after an ordinary survival clock would have expired”. The fund had applied that logic correctly to its tax representations. It had not applied the same logic to environmental compliance, which carries exactly the same kind of latent-discovery risk as a tax reassessment, just on a different regulator's timeline.
It is worth pinning the tax number the fund had been working from, because the fund had the wrong provision. The reassessment exposure a long tax survival period is drafted against comes from ITA s.152(3.1), the “normal reassessment period”: four years from the earlier of the sending of the original notice of assessment and the original notification that no tax is payable, where the taxpayer is a corporation other than a Canadian-controlled private corporation, and three years in any other case. Under s.152(4) the Minister may reassess beyond that period where the taxpayer “has made any misrepresentation that is attributable to neglect, carelessness or wilful default or has committed any fraud,” or where a waiver was filed in time. ITA s.230(4), which the deal team had been citing for its “six years,” is a records rule, not a reassessment rule: it requires a taxpayer to retain its books and vouchers “until the expiration of six years from the end of the last taxation year to which the records and books of account relate.” Six years is how long you must be able to prove the answer. It is not how long the CRA has to ask the question.
Once a survival period expires, the representation it protected effectively ceases to exist for indemnity purposes — there is no forgiving reading available, because a survival period is not a limitation period a court can relieve against. It is the parties' own definition of how long the promise exists at all. As treadstonelaw's summary of the mechanism puts it, “a share purchase agreement can say the general representations live for a fixed period and then stop.” The fund's counsel reviewed whether the contamination could instead be pursued under the fundamental representations (title, capacity, no litigation) or the tax representations, on the theory that a regulatory order might eventually generate a tax consequence. Neither route held: the contamination was squarely an environmental compliance matter, the representation drafted specifically for it had already expired, and there was no genuine tax representation for the remediation cost to attach to.
The $310,000 remediation cost landed entirely on the fund, as owner of the business going forward, with no indemnity recovery available under the agreement as drafted.
The fund rebuilt its standard survival-period matrix for future deals, moving environmental and regulatory compliance representations onto the same reasoning it already applied to tax: survival tied to the realistic discovery window for the specific risk, not a flat number chosen because it looked longer than the general period. For environmental matters specifically, that now means either an extended survival period matched to typical latent-contamination discovery timelines, or a standalone environmental indemnity outside the general representation structure entirely, with its own longer clock.
The broader change was procedural: every representation category is now reviewed individually for how long a breach of that specific kind of promise realistically takes to surface, rather than defaulting to a general/tax two-tier structure that happens to fit some risks and quietly fails others.
A 30-minute call is enough to tell you whether a structuring or diligence gap like this one is sitting in your pipeline.
