Contaminated land: the perils for a property lawyer

Glen Salt, Partner specialising in Commercial Property at CA member firm, Blacks Solicitors LLP looks at the legal issues associated with contaminated land.

Contaminated land is the biggest environmental issue with which property lawyers in the UK are faced today and it is estimated that 25% of UK land is contaminated.

The Contaminated Land Regime (CLR) came into effect in April 2000 and applies to all land whether residential, commercial, industrial or agricultural. It also applies to controlled waters (surface, ground and coastal). The legislation confers a duty upon local authorities to inspect and identify ‘contaminated land’ which is defined as land that appears to significantly harm the environment or human health. The local authority is also under a duty to take action to rectify the situation by serving a remediation notice on the party responsible for the contaminated land, unless remediation can be agreed on a voluntary basis. A crucial point for such land owners to note is that failure to comply with a notice is classed as a criminal offence under Part 2A of the Environmental Protection Act 1990.http://www.legislation.gov.uk/ukpga/1990/43/part/IIA.

The Polluter Pays…or do they? 

Primary responsibility for contaminated land falls on those who ‘caused or knowingly permitted the land to be contaminated’ and such person is known as a ‘Class A’ person. Liability to remediate contaminated land can be extremely costly. In Circular Facilities (London) Ltd v Sevenoaks District Council (2005) EWHC 865, for example, the contaminator was faced with a remediation bill amounting to millions of pounds. This was the result of the seemingly innocent contaminant; waste vegetables causing methane emissions!

The disconcerting aspect of the CLR is that if a Class A person cannot be found by the local authority, then the current owner, occupier or mortgagee in possession even may be held liable. Such a person is known as a Class B person. A buyer may even be held to be a Class A person if they know the land is contaminated but fails to remediate it after reasonable opportunity to do so.

Law Society Best Practice

The Law Society has recently issued new guidance on what it deems to be ‘best practice’ in Conveyancing transactions concerning contaminated land. A Solicitor acting for a buyer, tenant or lender should consider whether land contamination is an issue in ALL conveyancing transactions. Further, they should undertake a local authority and local land charges search to establish whether the land has been designated by the local authority as being contaminated. However, a negative result in these searches does not always mean the land is not contaminated, it could simply mean that the land has not actually been inspected for contamination. Therefore, it would be prudent to make more specific enquiries of the seller, landlord or borrower to ascertain the true nature of contamination on a site.

Acting for a buyer, tenant or lender

If it appears that the land is contaminated when acting for a buyer, tenant or lender, the best practice guidance illustrates that the solicitor should:

• Advise of the consequences of acquiring interests in contaminated land.
• Make further enquiries with the local authority or Environment Agency.
• Make further enquiries with the seller, landlord or borrower.
• Make full searches on any public registers regarding the site and adjacent land.
• Suggest that an independent site report from a commercial provider is carried out to assess the risks involved.
• Consider the intended use of the land; if the intended use will not be possible due to contamination then advice should be given as to whether to proceed with the transaction.
• Suggest an independent valuation of the property. A reduction in the market value as a result of contamination may mean that the buyer will require a price reduction and could cause a lender to withdraw from or impose additional conditions in their offer.
• Consider and advise on the use of appropriate contractual protections. Such as including exclusion and indemnity clauses and apportionments, warranties or by making the contract conditional upon the seller complying with remediation notices prior to completion.
• Consider and advise on the appropriateness of obtaining an environmental insurance policy.
• In leasehold transactions, consideration should be given to whether the usual repair, service charge and statutory compliance obligations transfer remediation liability from the landlord to the tenant. Consideration should also be given to any specific environmental provisions in the lease and the implications of such clauses.
• When acting for a lender, CML guidelines requires a Solicitor to notify them of any contaminated land entries revealed by a local authority search. The handbook should be consulted to see whether the particular lender wants to receive environmental or contaminated land reports. In cases of contaminated land, instructions should be sought from the lender as to how and whether they wish to proceed with the transaction.

Acting for a seller or landlord

A seller or landlord could become exposed to liability for contamination in a transaction where the previous use of the land meant that contamination was not an issue but where the buyer wishes to change its use revealing that the seller had previously caused or knowingly permitted the land to be contaminated. Best practice is to ensure that any necessary contractual provisions or indemnities are obtained in order to minimise any liability of the Seller.

The best practice note can be considered in greater detail here: http://www.lawsociety.org.uk/support-services/advice/practice-notes/contaminated-land/?utm_source=emailhosts&utm_medium=email&utm_campaign=PU+-+18%2F12%2F14 or for further information or advice about contaminated land and the risks, please contact our Commercial Property Department.