Contaminated land must be discussed with clients

The April edition of The Journal published a Contaminated Land Information Leaflet together with a short article by Linsey Lewin, the Secretary of the Conveyancing Committee.  The principal message is that after a substantial period of uncertainty we now have a statement from The Law Society of Scotland as to what constitutes current best practice.  The principal lesson is that the issue must be discussed with clients.  The issue must be raised and action taken.

The principal mechanisms by which some kind of action can be taken regarding contaminated land are as follows:

1. Environmental survey

The best way by which any party can safeguard its interests and establish whether any area of ground is contaminated and, if so, the nature of the contamination and accordingly whether or not it would be prejudicial to that party’s interest to obtain a full environmental survey of the ground (and of appropriate neighbouring ground) from a reputable qualified environmental consultant who is fully insured against claims and contractually obliged within his instruction to maintain that insurance for so long as a claim is likely.  Any party relying on such a survey must also ensure that the environmental consultant has a legal duty to them either through direct employment or through some form of Collateral Warranty or Assignation.

A property environmental survey will contain two distinct elements. Phase 1 basically consists of an examination of all maps, planning records and all other documentation which can be assembled to indicate the history of the site, the uses to which the site was put in the past, any structures which have existed on the site and the uses of and structures on areas of ground in reasonable proximity to the ground under investigation. A Phase 1 survey should also involve a visit to the site.  Properly done, a Phase 1 survey can establish whether there is any substantial risk that the ground in question is contaminated. A Phase 1 survey may be sufficient to establish there is no reasonable risk of contamination and it may not be necessary to proceed on to Phase 2.

If it is necessary to proceed on to Phase 2 then the Phase 2 survey will involve actually digging holes and taking soil samples in order to determine whether the ground is actually contaminated. The information gathered in the Phase 1 survey will be very useful in influencing where the holes are actually dug and will also assist in the interpretation of the results of the soil samples.

A full environmental survey is the very best thing which can be done in order to establish whether ground is contaminated. It has to be recognised, however, that such surveys are expensive and they may not always be economic in the circumstances of every transaction.

2. A restricted Environmental Search

Linsey Lewin’s article in the April edition of this journal mentioned that there are commercial companies active in the marketplace which give detailed information about the risks of contamination in particular areas and indeed at particular addresses. Linsey Lewin’s article mentioned that the Conveyancing Committee had a degree of doubt about their immediate relevancy. It appears to me however, that they are a mechanism by which some kind of information can be obtained reasonably swiftly and reasonably economically. I am aware of one provider who will provide a residential Search for £39 while commercial Searches start from £175.

Such a Search will provide a great deal of information regarding the previous use of the land based on information obtained from the Ordnance Survey, SEPA, the Coal Authority, the British Geological Survey Local Authorities and possibly other sources. Such providers will then offer an opinion, based on the data they have, as to whether the property would be designated as “contaminated land” within the meaning of Part IIA of the Environmental Protection Act 1990 and whether the data is likely to have an adverse effect on the value of the property.

Such reports and such opinions must be treated with a great deal of care.  They cannot amount to a definitive guarantee that the land has no form of contamination. Total reassurance can only come from a full Environmental Survey. They do however, provide a reasonably swift and economic way of obtaining some kind of information regarding the past use of the land and whether or not that past use indicates there is likely to be a danger of a contamination risk on that site.

3. The Official Register drawn up in terms of Section 78R of the Environmental Protection Act 1990 as amended

In terms of Section 78R every enforcing Authority (i.e. all Local Authorities and SEPA) must draw up a Register containing prescribed particulars. It is important that a Search is made against this Register and Linsey Lewin’s article commented on the requirements of the Council of Mortgage Lenders Handbook in this respect.

4. Title deeds

The titles to any area of ground will contain a great deal of information regarding the past uses of that area of ground and of the surrounding area.  Many writs will provide substantial information regarding the structures and uses which are permitted or prohibited on any area of ground. Information may also be provided by plans and by the names of the Companies involved with the property.

Such information is not necessarily definitive. A title deed may have been granted which envisaged the erection of a certain structure and the use of the ground for a certain use. Plans may then have changed. The titles are however, an indication of what previous uses may have existed. On the basis of the information contained in these deeds a solicitor examining the titles then knows or should know the past uses of the ground in question. A point to be noted is that if such title information indicated there was a past contaminative use then a solicitor may be deemed to have known about this past use and it might be possible to criticise a solicitor who took no action regarding such information which he had.

5. Information available to the client

A solicitor should not overlook his own client as a source of information. If there is a transaction relating to land then the client has an interest in that land and may well have a degree of information regarding the current and previous uses of the land and perhaps even regarding the likelihood of contamination existing. This source of information should not be overlooked and enquiries should be made of clients as to what information may be available.

6. Warranties and Indemnities

Space clearly does not permit a full discussion of warranties and indemnities.  In essence, however, a warranty in the context of contaminated land is a statement made by the party giving the warranty and warranting it to be true with the Indemnity being a consequential statement that the party giving the warranty undertakes to compensate the grantee of the warranty if the statement should prove to be untrue. A number of very basic points should be borne in mind:

• Any party seeking warranties and Indemnities should seek to ensure that the warranties are in fact relevant. Warranties should be focused on the reality of the actual transaction.
• Any party granting a warranty should be very sure that what they are warranting to be true is in fact true otherwise they may require to pay out substantial compensation.
• It may be prudent for the party granting the warranty to seek to impose an upper financial limit on its liability and a time limit within which any claim must be intimated. Conversely the party to whom the Indemnity is granted will seek to resist the imposition of such limits.
• The party to whom the warranties and indemnities are granted should consider the financial standing of the company or individual granting of warranties and indemnities. Financial standing is relevant not only at the date when the warranties are granted but also as at the date when the warranties might be relied upon.

7. Environmental Insurance

Given the readily apparent shortcomings of the other mechanisms available it is tempting to seek to obtain insurance against the risk that contamination of ground may cause financial loss in the future. Environmental insurance can be very useful in certain circumstances and the nature of environmental insurance available is constantly changing and evolving. It must be borne in mind however, that insurance companies are extremely unlikely to insure against risks which cannot be quantified with some degree of precision.  Insurance can for example be very useful in the following circumstances:

• Where a reasonably large and valuable contaminated site is being re-developed it may be possible to obtain an Insurance Policy which insures future owners and/or tenants of that ground or parts of it against loss which might be caused due to any defect in the decontamination of the area in question.
• In bulk transfers of property (for example, bulk transfers of social housing) it may be possible to obtain insurance against future loss due to contamination of the ground on which these structures are erected.
• It is sometimes possible to obtain insurance against contamination via providers of restricted Environmental Searches if those restricted Environmental Searches indicate a relatively low level of risk.

Unless the solicitor in question has unusually extensive knowledge of the environmental insurance market it would be prudent for a solicitor to employ a broker knowledgeable in environmental insurance to select and recommend suitable environmental insurance to deal with any difficulty.

This is the first part of a two part article. In the June issue of the Journal of the Law Society of Scotland Kenneth Ross will consider the provisions of the Contaminated Land Information Leaflet in greater detail.

Kenneth Ross is the Convenor of the Law Society of Scotland Environmental Law Committee. The opinions expressed in this article are, however, the personal opinions of Kenneth Ross and do not represent any statement on behalf of The Law Society of Scotland. Some of the material above is based on material contained in “Contaminated Land for Conveyancers” a book by Kenneth Ross which is scheduled to be published by Greens in July 2003.