Contaminated land regime - warning to all

Matthew Townsend advises solicitors to take heed of the environmental warning card and prepare themselves for the contaminated land regimeLast June the Law Society issued a warning card to solicitors highlighting pitfalls when advising clients in transactions involving contaminated land.

The warning card comes in the wake of the new contaminated land regime and is a timely reminder to practitioners of the perils of not addressing environmental matters from the outset of transactions.

The card states that 'in every transaction you must consider whether contamination is an issue'.

There is a broad range of transactions in which environmental issues may arise.

The more obvious examples are property, and corporate acquisitions and disposals.

Sellers often wish to ensure they pass on as many liabilities as possible - buyers must be aware of this and of all liabilities they are acquiring before becoming committed.

Liability for contamination must also be apportioned in leasehold transactions.

A landlord needs to minimise the risk of picking up any liability caused by the activities of the tenant.

Likewise, a tenant should ensure that he or she does not inherit environmental liabilities already existing at the commencement of the lease.

Residential transactions can be equally affected by environmental matters and this is one of the driving forces behind the warning card.

The principle of caveat emptor remains firmly in place in all property transactions and it is left to a buyer and his or her advisers to ensure they are comfortable with any environmental problems brought to light.

While local authorities may be reluctant to take enforcement action against residential occupiers in respect of contamination, they cannot ignore problems arising from residential property, and the contaminated land regime gives them little scope to be lenient.The environmental condition of the land will also be of concern to funders both in terms of the value of the security and the risk that mortgagees may be directly exposed to liabilities when enforcing their security.

In residential conveyances, the buyer's solicitor may thus have a conflict where a duty of care is owed to the mortgagee as well as to the buyer.

Lenders are increasingly likely to take an interest in the environmental condition of their security, as has been the case for some time in the commercial property sector.Environmental issues can also have a major impact on clients redeveloping land both in terms of managing liabilities and the costs of redevelopment.

It is becoming common practice for planning conditions or planning obligations to require a site investigation and, where necessary, remediation.The main risksThe risks of acquiring contaminated land include:l Inheriting pre-existing liabilities for contamination on the property;l Being unable to secure finance for the acquisition;l A reduced resale value of the property - particularly given ever-tougher environmental standards;l Increased costs of any site redevelopment through having to address contamination.What are the key legal liabilities arising from contaminated land? In addition to the liability to clean-up contamination, other legal liabilities fall into four categories:l Criminal prosecution for a pollution offence, for example, under section 85 of the Water Resources Act 1991 (WRA);l Liability under sections 161A-161D of the WRA to clean-up contamination leading to water pollution;l Civil liabilities to third parties - primarily for any nuisance caused by migrating contamination or for negligence, and;l Liabilities under environmental permits held by the client.The contaminated land regimeThe contaminated land regime came into force on 1 April 2000 in England and is contained in part IIA of the Environmental Protection Act 1990.

The regime came into force in Wales on 15 September 2001.

This is the most likely regime under which a requirement to clean up contamination will arise.The regime requires local authorities to identify contaminated land (as defined) within their areas.

This identification is risk-based.

Land that has some contamination in it does not necessarily fall within the definition of 'contaminated land'.

The regulators must identify a 'pollutant linkage', namely a pollutant, the pathway through which that pollutant can travel (such as groundwater), and a target which will be affected by the contamination (such as human beings or groundwater).

Crucially, where the original polluter cannot be found, liability for contamination can attach to the owner or occupier of land for the time being.

Hence, an owner can be liable for contamination he or she did not cause - a trap for the ill-advised client.Practitioners should also take note of the lengthy statutory guidance that accompanies the regime (Department of the Environment, Transport and the Regions Circular 02/2000) and associated regulations.

The guidance details how liability must be apportioned and provides a series of tests which can operate to exclude a person from liability and apportion liability between those identified as responsible.A number of sources of information are available to the practitioner, including:l Pre-contract standard enquiries;l Searches of local authority registers, including registers established under the contaminated land regime;l Commercial search providers - these will provide a short report on public register searches and historical mapping, identifying such things as relevant environmental permits, registered landfill sites, details of recorded prosecutions for environmental offences in the area, and evidence of current and previous contaminative uses.

These do not generally contain any interpretation of search results so there will need to be some professional judgement on the information provided;l Reports of independent environmental consultants - these will generally provide a more detailed look at the condition of the land and its historical uses, and usually include a brief site walk-over.

The consultant should be asked to give a judgement as to whether additional investigations are required and the degree of risk posed by the condition of the site.Protections for the clientThere are protections that can be sought when a client is acquiring land which may be contaminated.

How relevant these are will depend on the nature of the deal and the client.

These include:l Due diligence - assists the client to make an informed decision on the risks there may be;l Warranties regarding the condition of the property.

More traditionally used in corporate rather than property transactions;l Indemnities - becoming common practice in corporate and, increasingly, commercial property transactions.

Unlikely to be suitable for a residential transaction;l Insurance - a growing market is developing for environmental insurance.

The limitations on these policies should be looked at carefully (particularly limits as to the period of cover and the amount recoverable).

Increasingly popular in the residential sector;l Restructure the transaction - there are several ways that a transaction can be structured to minimise the buyer's exposure;l Reduce the price to reflect the environmental risks.Environmental issues will not arise in every transaction and, in many, a client will be content to make an informed decision about the risks he or she is taking without seeking any additional protection.

However, practitioners need to address environmental issues from the outset of a transaction and to be in a position to make a professional judgement as to how significant these are likely to be.

The warning card is testimony to the fact that it will no longer be acceptable simply to ignore these risks.

l A more detailed edition of this paper can be found on the Web site of the UK Environmental Association ( Townsend is an associate at City law firm Allen & Overy and a member of the contaminated land working group of the UK Environmental Law Association