by Jen Lemen
Hot Topic Highlight - Contaminated Land (Spring 2019 update)
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This week, we will be looking at contaminated land and the related RICS guidance. Make sure you are aware of these if you are sitting your RICS APC or AssocRICS assessment this Spring.
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Why is this relevant?
Once a development site has been identified, the purchaser needs to undertake due diligence to assess the potential risks and rewards associated with development. A key element of these preliminary investigations is considering whether there is any contamination affecting the site.
If a site is identified as being contaminated, then the remediation costs can be substantial. This needs to be factored into the purchaser's development appraisal to ensure that the development remains viable. There are also legal responsibilities relating to contaminated land, so developers need to understand the risks of acquiring contaminated land.
What do I need to know?
- What is the definition of contaminated land?
- Why is it important to know if a site is contaminated?
- What are the signs that a site might be contaminated?
- What has responsibility for it?
- How is contaminated investigated?
- How would I value contaminated land?
What is the definition of contaminated land?
Part IIA of the Environmental Protection Act 1990 defines contaminated land as 'any land which appears to the local authority in whose area it is situated to be in such a condition, by reason of substances in, on or under the land that:
- Significant harm is being caused, or there is a significant possibility of such harm being caused; or
- Significant pollution of controlled waters is being caused, or there is a significant possibility of such pollution being caused'.
Harm is defined as 'harm to the health of living organisms or other interference with the ecological systems of which they form a part and, in the case of man, includes harm to his property'.
A substance is defined as 'any natural or artificial substance whether in solid or liquid form or in the form of gas or vapour'.
Furthermore, the National Planning Policy Framework (NPPF) states that 'the planning system shall contribute and enhance the natural and local environment by preventing both new and existing development from contributing to or being put at unacceptable risk from, or being adversely affected by, unacceptable levels of soil, air, water or noise pollution or land instability; and remediating and mitigating despoiled, degraded, derelict, contaminated and unstable land, where appropriate'.
Why is it important to know if a site is contaminated?
With planning policy placing a growing importance on developing brownfield sites, together with a lack of available greenfield sites, it is often difficult for developers to avoid purchasing contaminated land.
There is also a growing trend of occupiers becoming increasingly litigious, which means that contaminated land is a problem that is not likely to go away in the near future.
In essence, surveyors and developers need to understand their obligations and responsibilities and to comply with the law relating to contaminated land.
What are the signs that a site might be contaminated?
- Previous land uses, e.g. petrol filling station, factory, mine, steel mill, refinery, landfill - check historic maps to assess the risk
- Leaks and spills from tanks and pipes
- Contaminated surface runoff and flooding
- Disposal of waste materials
- Demolition of buildings containing contaminated material, e.g. Asbestos
- Landfill on a site
- Bare ground
- Underground tanks
These could include contamination by:
- Heavy metals, e.g. arsenic, cadmium and lead
- Oils and tars
- Chemical substances, e.g. solvents
- Gases, e.g. carbon monoxide
- Asbestos (see Control of Asbestos Regulations 2012)
- Radioactive substances
- Japanese knotweed
- Unexploded ordnance
Who has responsibility for it?
Part IIA of the Environmental Protection Act 1990 sets out the 'polluter pays' principle. This means that whoever knowingly caused the contamination will usually be responsible for the remediation costs. This means that an industrial occupier who sells land to a developer may remain liable for contamination in the future.
However, if it is not possible to identify the polluter (e.g. a company who no longer exists) then it will be the landowner who is responsible - this means that it is important for developers to investigate whether land is contaminated prior to purchase. Early legal advice is prudent to ensure that risk is minimised in any acquisition involving contaminated land.
In the majority of cases, the responsibility for ensuring safe development will rest firmly with the landowner or developer who must ensure appropriate assessment and consideration of the risks relating to the contaminated land.
If contamination is identified, then the local authority should be identified who will ensure that remediation works are carried out by the responsible party, either by agreement or following service of a remediation notice. In the worst case scenario, the local authority can remediate the land and recover the costs.
How is contaminated land investigated?
In simple terms:
- Phase 1 - preliminary risk assessment which assesses the site history and the impacts of contamination, e.g. current or future occupant, groundwater, ecology (receptors) - both on and off site and the pathways of that contamination
- Phase 2 - further assessment will be required if risks are identified which are moderate or high. This involves an intrusive site investigation including trial pits, bore holes and soil and water testing
- A remediation report will then be produced with suitable recommendations relating to mitigation (barriers and membranes) and site remediation (removal or reduction of the hazard to a level which is suitable for the intended use)
- Clean up costs will vary depending on the extent of contamination, but are generally based on the cost of removing the contaminated soil and taking it to landfill. This is not appropriate in the case of Japanese knotweed, which must be systemically treated on site
What guidance do RICS provide?
RICS Guidance Note Environmental risks and global real estate (1st Edition, November 2018). This is principally aimed at the land and property acquisition, disposal and asset management stages of the property life cycle.
It supplements the guidance in the Red Book (e.g. VPGA 8) and supersedes Contamination, the environment and sustainability: implications for chartered surveyors and their clients (3rd Edition, 2010).
The new guidance note includes detail on the following:
- Role of Chartered Surveyors and other professionals in advising on environmental matters and contamination
- Types of environmental reports, e.g. Environmental Screen Report (ESR) including risk rankings and Land Quality Statements (LQS)
- Impact of environmental law on valuation, e.g. air quality, water quality, waste management, contamination, chemicals, resource management and biodiversity
- Property observation checklists, enquiries and recommending further investigations
- Reporting the outcomes in a valuation, including negative and positive impacts of environmental factors and contamination
- Guidance for acquisitions, disposals, lettings and property management instructions
RICS summarise to say, 'environmental considerations can sometimes be seen as benefits, in the sense of contributing value, as well as liabilities – with every situation needing to be considered individually'.
How would I value contaminated land?
With care, as this is a specialist area! In the first instance, you should consider declining the instruction if you feel it is outside the scope of your expertise or experience.
If you do accept the instruction, you are obligated to notify your client of the contamination and recommend further investigations if you consider that there is a potential impact on value. It is not reasonable to simply make an assumption that there is no contamination if it is clearly present.
You should be mindful of the requirements of the Red Book, namely PS2 (having sufficient experience, skill and judgement), VPGA 2 (secured lending), VPGA 8 (characteristics of the property/site and environmental matters).
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Stay tuned for our next blog post to help build a better you
N.b. nothing in this article constitutes legal or financial advice.