Most property solicitors are not specialists in environmental law, but are increasingly finding that environmental issues impact on transactions. Andrew Wiseman outlines some of the most common environmental issues affecting property transactions
Over the years, more and more environmental issues have arisen in both residential and commercial property transactions. The focus of most transactions from an environmental perspective tends to be land contamination, but other issues should not be ignored, including flooding, asbestos, invasive species such as Japanese Knotweed, and radon.
Most property solicitors are not specialists in environmental law, but are increasingly finding that environmental issues are impacting on everyday transactions. It is important to ensure that the client understands the environmental risks and the limitation of the solicitor’s retainer.
In this article, I outline some of the common environmental issues arising in property transactions, and what conveyancers need to know to provide appropriate advice to buyers and sellers.
Land contamination liabilities are covered within the contaminated land regime, contained in part 2A of the Environmental Protection Act 1990 (and often just referred to as part 2A).
If the original polluter of the land cannot be found, the current owner or occupier may have liability for clean-up. A buyer can be determined as the ‘original polluter’. This is because the polluter is defined as ‘any of the persons who caused or knowingly permitted the [contaminating substances] to be in, on or under [the] land’. Allowing something to remain on land when you could remove it can amount to having ‘knowingly permitted’.
Actual knowledge of the contamination, turning a blind eye to an obvious risk of the presence of contamination, or failing to make enquiries for fear of discovering the truth could all amount to having the required knowledge, and therefore result in liability. Accordingly, if a buyer knew, or ought to have known, that there was contamination on the site, they may be liable as an original polluter.
Detailed provisions in part 2A exclude a seller from any further liability for contamination if a reduction in the purchase price was negotiated to take account of particular contamination and remediation, or if a site is sold with full information about its contaminated history. These exclusions are likely to be relevant in most commercial transactions.
Where there is no original polluter, the liability will fall on the current owner or occupier.
Following the implementation of part 2A, the Law Society issued a warning card on contaminated land in 2001. The latest version is the contaminated land practice note, issued in April 2016 (tinyurl.com/contaminated-land-pn).
The practice note suggests that it is good practice for solicitors, in every conveyancing transaction, to exercise their professional judgement in each case as to whether contamination is an issue. It sets out several steps to be followed. These apply to both residential and commercial properties.
While the CON 29 form will show whether the land has been designated by the local authority as contaminated, very few properties have been, so a negative reply may just mean one of the following.
- The site has not been inspected
- There was an inspection, but no conclusion has been reached
- The level of contamination is not high enough to reach the statutory definition, but may still be of concern and require remediation as part of a planning permission.
If it appears that contamination is an issue, then the solicitor should advise the client of the potential liabilities around acquiring an interest in contaminated land, and the steps that can be taken to assess the risks.
The solicitor may find it difficult to judge whether contamination is an issue, but consideration should be given to providing this advice in all circumstances.
Some lenders require the solicitor to undertake investigation into environmental issues, irrespective of the client’s own wishes. In particular, lenders require solicitors to undertake all ‘usual and necessary searches’. It is normally left to the solicitor to decide what these are. Many firms have a standard procedure to undertake environmental searches in all transactions, to ensure they meet any requirements.
Residential and commercial search products are offered by a number of search providers. They often offer only a basic risk assessment of the information, provided in a report. Different providers offer different forms of risk assessment. An assessment should include a professional opinion on whether the property will be determined as contaminated land as defined by part 2A.
Solicitors should note that any such risk assessment is based purely on publicly available information. No site visit is undertaken. No information service is able to determine, for instance, whether there had been a spillage of domestic heating oil in the back garden. Enquiries of the seller or the local authority may still be necessary; practitioners should not assume that a risk assessment which gives the property a clear report means that there is no problem. If problems are evident on the search, the providers will usually indicate what further steps should be taken before deciding to buy, and these can help the solicitor and client decide how to proceed.
The mere fact that a potentially contaminative historical use is shown does not necessarily mean that there is a problem with the land, merely that there may be, and this may require further investigation.
Insurance should be considered in residential or commercial cases, particularly when there are ‘unresolved problems’. Some commercial providers will now offer cheaper cover for smaller risks on standard wording, which may be sufficient for smaller transactions. Several companies in the insurance market offer cheaper products designed to cover the risk that residential property may be designated as contaminated, within the meaning defined in part 2A. Some environmental searches offer a contribution towards the remediation costs if a property is identified as a part 2A site after the property is purchased.
Often liabilities are managed through contractual protection. This may include:
- requiring the seller to make a specifically quantified and earmarked payment or price reduction, to take account of the potential liability
- requiring the seller to provide full information in the contract about the contamination to the buyer
- agreeing on a formula whereby remediation costs are shared between potential polluters (any such agreement should be honoured by the regulator)
- seeking appropriate warranties as to the state of the site at completion
- seeking an indemnity against future liabilities
- requiring remediation by the seller before completion.
From the seller’s point of view, achieving a clean break from the liabilities attaching to a commercial site may not always be possible. In particular, liability may continue for:
- breaches of the consents committed while they were the site owner and operator
- breaches of waste legislation while in possession
- contaminated land (as the person who originally caused or knowingly permitted substances to be on the site pre-sale)
- statutory nuisances
- water pollution offences
- sewage discharge offences
- civil liability.
As far as contaminated land is concerned, sellers should be aware of those clauses in the legislation that would exclude a seller from liability if:
- contract documents specifically reflect the payment of a specific sum for remediation
- the land is sold in circumstances where full information is provided to the buyer about the contamination on the site
- the seller and buyer agree on a
- contractual formula for dealing with any liabilities which emerge.
It is essential, when acting for the buyer or the seller, to ensure that the clauses are drafted in such a way as to maximise the chance of exclusion, and precedents are adapted to reflect the circumstances on site. It should be noted that any contractual arrangement is only effective if the buyer is still in existence when a regulator looks at allocating liability. If the buyer no longer exists, then the liability will still rest with the seller, despite the seller disposing of their interest.
The incidence of flood is a growing risk for owners of property in the UK. Apart from the physical damage that a flood can cause, if a property is at risk of flooding, it may be difficult to obtain a mortgage, obtain suitable / affordable insurance cover, or sell the property.
There are a number of different ways a property may be at risk of flooding. These may not always be obvious – for instance, the property may not be close to a river or it may be on high ground. The most common types of flooding are surface water, sewer, groundwater, river and/or coastal flooding.
Flood Re came into operation in April 2016, the object of which is to allow many property owners whose property is at high risk of flooding to obtain suitable property insurance, including cover for the risk of flooding. Not all properties at risk are eligible for the scheme. The following criteria have to be met.
1. The insurance contract must be held in the name of one or more individuals
2. The property must:
(a) have a domestic council tax band A to H (or equivalent)
(b) be used for residential purposes
(c) have an individual premium
3. The holder of the policy, or immediate family, must live in the dwelling for some or all of the time, or the dwelling must be unoccupied
4. The property must have been built before 1 January 2009.
It should be noted that leasehold blocks will not be eligible for the buildings cover, regardless of the number of units, if the insurance contract is held in the name of a management company. Many buy-to-let properties will not meet the requisite criteria, because the owner (and policy-holder) will not live at the premises all or some of the time.
The Law Society has issued a flood risk practice note which sets out its view of good practice for solicitors acting in conveyancing transactions (tinyurl.com/flood-risk-pn). An updated version was published in February 2016.
The practice note suggests that in any conveyancing transaction, whether acting for a buyer, tenant or lender, the solicitor should consider mentioning the issue of flood risk to their client, and if appropriate, make further investigations. Further investigations could include:
- conducting searches
- making enquiries of the seller
- instructing a surveyor to carry out a physical inspection, survey or valuation generally, and to provide advice on the impact of flood risk.
It may not be sufficient to rely on just one type of investigation to assess the risk of flooding.
Enquiries about flooding should be raised with the seller, landlord or borrower as appropriate as part of the pre-contract enquiries. For residential properties, the Law Society’s TA6 property information form makes enquiries on the subject of flooding and insurance.
In commercial property transactions, the Commercial Property Standard Enquiries (CPSE 1) require the seller to provide details of any flooding of which it is aware and ask whether the seller has had any difficulty in obtaining insurance at normal rates, excesses and exclusions.
A number of companies provide flood searches for both residential and commercial properties, some of which include information on surface water and groundwater flood risk, as well as the more standard river and coastal flooding information. Some of these also include a risk assessment.
Detailed specialist surveys are available if the client wishes to investigate matters in more detail. These look at the risk of flooding from a variety of sources both before and after the installation of appropriate flood resistance and resilience measures. These reports can be used to help decide what measures are necessary to mitigate the risk of flooding, understand the costs of such measures, and demonstrate to insurers that measures have been put in place to satisfy their requirements.
Lenders may impose additional requirements in their specific instructions – for example, to ensure that the excess payable for insurance does not exceed an amount stated by the lender.
In particular, lenders require solicitors to undertake all ‘usual and necessary searches’. It is normally left to the solicitor to decide what these are. Many firms have a standard procedure to undertake a flood search in all transactions, to ensure they meet any requirements.
Non-native invasive species (such as Japanese Knotweed) are becoming an increasing problem, particularly on development sites. They can be difficult and time-consuming to eradicate.
A buyer should make specific enquiries of the seller as to the presence of any invasive species, and also ask their surveyor to look for their presence. If they has been present and been treated, full details of the treatment as well as any guarantee provided by the contractors should be obtained.
It should be noted that standard desktop environmental searches do not deal with Japanese Knotweed.
Radon is a naturally occurring radioactive gas which is present in the ground and is found at low levels in most buildings. The recommended limit for radon in UK homes is called the ‘action level’. A radon-affected area is declared when the estimated percentage of dwellings at or above the action level is one per cent or more. The answer to question 3.14 on form CON 29 (Enquiries of Local Authority) (2016) will reveal whether a property is in a radon-affected area. If this is the case, the seller should be asked for the results of any radon measurements made in the property.
Measures can be taken with relative ease to assess the level of radon in any property. Testing kits can be bought for less than £50 and take about three months to obtain results. Public Health England recommends various measures which can reduce radon levels in a property.
If the property is in a radon-affected area and the seller does not have the results of a radon test, then it is possible to manage the risk by way of a retention from the sale proceedings. Once the test results are received, if they are below the action level, the money is paid to the seller, but if the action level is breached, the money is used to carry out remedial works.