November 2019

Preservation of the environment is a key concern in today’s modern society. Given rising sea levels, climate change and widespread land and water contamination, one measure that the UK has taken is to implement Environmental Laws designed to lessen the impact of human activity on the environment by setting out strict guidelines which must be followed. Environmental issues are pervasive throughout property transactions and even more so in relation to commercial property. The UK’s long industrial history has resulted in a substantial legacy of land contamination. This land includes industrial, mining and waste disposal sites. Various industrial practices have led to substances being in, on or under land, such as oils and tars, heavy metals, organic compounds, soluble salts, and mining materials. In the past, land filling of waste sometimes took place without adequate precautions against leaching or the escape of landfill gases. The objectives behind the current legislation are to identify and remove unacceptable risks to human health and the environment, and to ensure that the costs of clean-up are manageable, proportionate and economically sustainable. The intention of clean-up is that contaminated land will end up being suitable for use. What Is the Contaminated Land Regime? The Contaminated Land Regime Legislation has been introduced to identify and deal with the clean- up of contaminated land. Section 78A(2) of the EPA 1990 (as added by s.57 of the EA 1995) defines ‘contaminated land’ as: “any land which appears to a local authority to be in such a condition, by reason of substances in, on or under the land that: 1. significant harm is being caused or there is a significant possibility of such harm being caused; or 2. significant pollution of controlled waters is being caused or there is a significant possibility of such pollution being caused.” In 2006, the legislation was extended to apply to radioactive contamination by the Contaminated Land (England) Regulations. The legislation introduces the concept of placing responsibility for clean-up of contaminated land with the ‘Appropriate Person.’ The presence of contaminated land on a site will seriously affect the ability to sell or mortgage the property because the potential cost of cleaning up the land can be very high and the purchaser or mortgagee in possession could end up inheriting that liability. Remediation Notices Section 78B of the EPA 1990 requires local authorities to identify contaminated sites within their area. Local authorities are the main regulators and are required to publish a strategy for inspecting their area. Under s.78C(8), land which is considered to be the most seriously contaminated or contain widespread contamination is designated a ‘special site’. Special site categories include Ministry of Defence land and pollution of controlled waters where contamination is breaching drinking water quality standards. Once a site has been formally identified by a local authority as a ‘special site’ the Environment Agency takes over from the local authority as regulator. The local authority must ensure that appropriate remediation of the identified contaminated land takes place by serving a remediation notice on the Appropriate Person requiring such clean-up works as they consider reasonable (s.78E EPA 1990). The ‘Appropriate Person’ served with a remediation notice will be either a Class A or a Class B person. Class A persons Class A persons are those who caused or knowingly permitted the pollutant to be in the land. Additionally, someone who buys land with knowledge of the contamination and does nothing to remedy the contamination, could be a Class A person. If the buyer is a large commercial organisation and the seller has given the buyer permission to carry out environmental investigations this will normally be evidence that the buyer has knowledge of the contamination. Class B persons If no Class A persons can be found after reasonable enquiry, then the Class B person will be liable. Class B persons are those who own or occupy the land for the time being. If an appropriate person does not carry out the necessary remedial work specified by a remediation notice, the local authority (or the Environment Agency if the contaminated land is a ‘special site’) can enter and clean up the site and recover the costs of so doing from that person. Failure to comply with a remediation notice without reasonable excuse is a criminal offence. Fines of up to £20,000 can be payable together with daily penalties. Local authorities must compile and keep registers of remediation notices and any contaminated land which has been identified. If the Local Authority identifies more than one ‘Appropriate Person’ for any given site they will consider and determine for what proportion of the contamination such Appropriate Person is responsible and allocate liability accordingly. Steps to Take to Ascertain and Reduce the Risks of Environmental Liability It is vital that buyers, tenants or lenders make careful enquiries to discover whether or not contamination may be a problem on the land to be bought, let or charged. Limited information is available from public sources. The buyer may consider the following steps: preliminary searches, in particular a local authority search, CON 29; pre-contract enquiries of the Seller; obtain a ‘desktop’ report from an independent firm of environmental consultants, which involves solely a review of publicly available material, such as public registers and current and historical maps; specific enquiries of regulatory bodies, e.g. the local authority and the Environment Agency; commission a Phase I Environmental Report which involves the same as a desktop report plus a site visit and specific enquiries of the occupier; and/or commission a Phase II Environmental Report which normally follows a Phase I Report, if risks have been found, and includes laboratory tests of soil and groundwater samples and a risk assessment. There are various methods available to the buyer to control the extent of its liability: Conditional Contract: the buyer may exchange contracts conditional upon obtaining a satisfactory environmental survey, or conditional upon the seller remedying, to the buyer’s satisfaction, any contamination found on site. In this way the buyer can be sure that the site is not contaminated, and that the seller will meet any clean-up costs. Price Reduction: they may seek a price reduction to cover the potential costs of liability for contamination, including the costs of clean up and any liabilities for losses suffered by third parties. Seller’s Warranties and Indemnities: where it is inappropriate or not possible to carry out a full-scale site investigation, then the seller may warrant that the property is not contaminated. It is then possible for the seller to agree to indemnify the buyer against any costs, claims or damages incurred by the buyer by reason of the site turning out to be contaminated. Tenants, on the other hand, may seek to negotiate an express or qualified exclusion of liability. It is important that they exclude it from both the repair liability and the service charge provisions. If there is a lease of part, the tenant might consider service charge capping. They should also consider carefully the potential scope of tenant’s covenants even if clean-up costs are not specifically mentioned. Similarly, any actual and/or potential environmental liabilities will need to be drawn to the attention of the lender, who will need to be satisfied as to the position and may consider imposing conditions regarding the loan. Liability for clean-up of contaminated land can even extend to a lender who may have entered into possession of property. If you need more advice about your property or a property you’re thinking of buying and whether there are any environmental issues, speak to your solicitor for more information. Disclaimer – our articles are designed to give you guidance and information. There is no substitute for proper direct advice, particularly as everyone’s circumstances are different. If anything in this article may affect you, please contact us for advice that is specific to your circumstances.

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