Risk of Contaminated Land
Scotland’s industrial history has undoubtedly left a legacy which may cause concern for present land owners or occupiers.
Land contamination is by no means a new problem but it’s one which now attracts increasing attention in transactions involving industrial land. This is mainly due to the statutory regime (Part IIA Environmental Protection Act 1990 and subsequent amendments) in force to deal with contaminated land which has important implications for both sellers and purchasers. It’s important to be aware that such environmental liabilities do arise and may have significant impact on sale contracts.
The definition of contaminated land includes land which is likely to impair human or animal health, cause damage to property and break down natural ecosystems. It is not always easy to ascertain whether land is contaminated. There is no complete register of such data. However, if the land in question has been, or continues to be, subject to industrial or contaminative process activity then this should alert parties to investigate the matter further.
The statutory regime imposes liability, in the first instance, on persons who “cause or knowingly permit” a contaminant to be on the land. It may well be that such persons cannot be traced, in which case the current owner or occupier assumes liability. A landlord must also ensure his leases to occupiers control potential contamination and the liability of the tenant to remediate. The regime recognises that land may be sold ‘fit for purpose’ and a seller must take into account the purchaser’s intended use of the land and contract accordingly. For example, any interference with capping of contamination or channels of possible migration offsite or to water courses will likely be the subject of a clause in the sale contract.
There are some instances in which the seller’s liability may be excluded. One key example of this is ‘selling with knowledge’, that is when a buyer is properly informed of the presence of contamination before acquiring affected land. There is therefore an advantage to be gained by a seller willing to divulge information, or allow extensive examination and survey, as a means to minimise their liability. Such a disclosure exercise will generally become a bargaining tool in the negotiation of contracts and will be reflected in the price.
The aim for a seller when selling land will be to transfer, in so far as possible, all environmental liabilities. To minimise liability, the seller will wish to insert contractual provisions to allocate the risk between the parties. Indemnities may also be agreed as well as an adjustment to the price to reflect identifiable risks. Furthermore, the contract may be conditional on a seller complying with any works to remove the contamination.
A future purchaser or its successors may mismanage the land or the entity may cease to exist. This can be a problem for the seller as the contaminated land regime adopts the “polluter pays” principle as outlined above even when no longer the owner if no other responsible and viable party can be identified. Insurance or taking control of remediation pre sale may be the only protection and so should be considered at the time of transacting.
Any agreements to adjust environmental liability will require careful consideration in the context of the statutory regime and professional advice should be sought at an early stage in any negotiations.