1.1 Who should read this practice note?
All solicitors involved in property transactions.
1.2 What is the issue?
Commercial and industrial activity may result in land becoming contaminated with substances which, if not properly dealt with, could pose a risk to public health or the environment.
Land in England and Wales has a legacy of contaminants in soil, mainly caused by industrial and domestic pollution. Although most soils contain some contaminants, the levels of risk posed are usually very low.
However, some land poses an unacceptable level of risk, especially former landfill or industrial sites. Land is only treated as 'contaminated land' for legal purposes if it poses an unacceptable level of risk.
The Contaminated Land Statutory Guidance 2012 has replaced the previous statutory guidance issued under Part 2A of the Environmental Protection Act 1990, however, the legislation remains unaltered.
The guidance sets out a modified, broadly risk-based approach to contaminated land. The standards also apply to land that is redeveloped.
Land contamination may be a significant issue in a small number of transactions. You should be aware that environmental liabilities may arise and should consider what enquiries and specialist assistance your client should be advised to obtain.
1.3 Professional conduct
The following sections of the Solicitors Regulation Authority ('SRA') Handbook are relevant to this practice note:
- Chapter 1 of the SRA Code of Conduct 2011 ('the Code'): client care.
- Chapter 6 of the Code: Your client and introductions to third parties
Practice notes are issued by the Law Society for the use and benefit of its members. They represent the Law Society's view of good practice in a particular area. They are not intended to be the only standard of good practice that solicitors can follow. You are not required to follow them, but doing so will make it easier to account to oversight bodies for your actions.
Practice notes are not legal advice, nor do they necessarily provide a defence to complaints of misconduct or of inadequate professional service. While care has been taken to ensure that they are accurate, up to date and useful, the Law Society will not accept any legal liability in relation to them.
For queries or comments on this practice note, contact the Law Society's Practice Advice Service.
2 Contaminated land
2.1 The contaminated land regime
The contaminated land regime came into effect in England on 1 April 2000, and in Wales on 15 September 2001. The legislation, which is contained in Part 2A of the Environmental Protection Act 1990 and the regulations and statutory guidance issued under it, is retrospective. It covers existing and future contamination and has been modified to cover radioactivity.
The regime applies to all land - whether residential, commercial, industrial or agricultural - and 'controlled waters', that is, surface, ground and coastal waters. It can affect owners, occupiers, developers, and lenders.
Primary responsibility falls on those who caused or knowingly permitted the land to be contaminated.
The legislation requires local authorities to inspect and identify sites at which there is 'contaminated land', that is, land on which there is a 'significant contaminant linkage', consisting of a significant contaminant, a pathway, and a receptor.
Local authorities can issue remediation notices requiring action to remediate contamination, in the absence of a voluntary agreement to do so.
In the case of 'special sites', which tend to be sites with water pollution or more serious contamination, responsibility for enforcement lies with the Environment Agency in England, or Natural Resources Wales.
2.2 Radioactive contaminated land
A separate regime applies to radioactive contaminated land. This is set out in:
Local authorities have the power to determine land as radioactive contaminated land. Once they do so, the land becomes a 'special site' and the Environment Agency or Natural Resources Wales takes over as the regulator and enforcing authority for remediation. The local authority should be your starting point for queries.
Radioactive contaminated land will not be an issue in the vast majority of transactions, but you should be aware of the existence of this regime.
2.3 Liability for remediation of contaminated land
Liability to remediate land may arise as a result of substances in the land which give rise to a risk of harm to persons or other 'receptors' in the form of designated ecological areas, controlled waters, or property in the form of crops, animals or buildings.
Liability falls primarily on those who 'cause or knowingly permit' a contaminant to be in, on or under the land. Such a person is known as a 'class A' person.
However, if a class A person of the land cannot be found, the current owner or occupier may be served with a remediation notice requiring them to remediate the land. In this case, the current owner or occupier is known as a 'class B' person. Mortgagees in possession can also be class B persons.
In some situations the buyer may be determined to be a class A person if the buyer knows that land is contaminated and fails to remediate it after a reasonable opportunity to do so.
If a seller (who would otherwise be a class A person) has made a payment to the buyer for remediation purposes (effected, for example, through a price reduction) or the seller has sold the land 'with information' (that is the requirements of Test 3 in section 7(c) of the statutory guidance have been met), the buyer is likely to bear the liability of the seller as well as its own liability for continuing to permit the land to be contaminated.
This is most likely to be relevant in commercial transactions but could occur in residential transactions - the effect is that liability for contamination will run with the land.
Part 2A of the Environmental Protection Act 1990 makes it an offence to fail to remediate contaminated land in accordance with a remediation notice. In this situation, the local authority can carry out the necessary work and recover the costs from the person or entity served with the remediation notice.
There are complex exclusion provisions for transferring liability from one party to another. Some exclusions apply only on the transfer of land, or the grant of a lease. You may need to consider the applicability of any relevant exclusion before your client enters into such transactions.
3 Conveyancing transactions
3.1 Steps to be taken when acting for the buyer, tenant or lender
You should consider whether land contamination is an issue in all conveyancing transactions.
In all purchases, leases or mortgages, you should, unless your buyer, tenant or lender client instructs you otherwise, undertake a CON 29 and LLC1 search to ascertain whether the land has been designated by the local authority as contaminated.
Enquiry 3.13 on CON 29 will reveal:
- contaminated land notices affecting the property;
- entries on a register maintained under section 78R of the Environmental Protection Act 1990; and
- any consultation with the owner or occupier of the property under section 78G(3) of the Environmental Protection Act 1990 before the service of a remediation notice.
If the land has been designated as contaminated, you should make further enquiries of the seller, landlord or borrower, and take instructions from your client as to any further investigations that may need to be made.
A negative reply from the local authority to question 3.13 on CON 29 can mean one of several things:
- there is no contamination
- the site has not been inspected
- the level of pollution is not high enough to meet Part 2A definitions, or
- no conclusion about the site has yet been reached, even if a site inspection has finished.
You may need to make more specific enquiries to ascertain the true nature of contamination on a site.
If it appears that contamination is an issue and you are acting for a buyer, tenant and/or lender, you should:
- Advise of the consequences of acquiring interests in contaminated land. These may include the potential liability for contamination and to have to comply with a remediation notice. You should also advise on the steps that can be taken to assess the risks.
- Make further enquiries of the local authority or Environment Agency or Natural Resources Wales to elicit more details. However, if the land has not been formally identified or determined as contaminated, no information will be held on local authority or Environment Agency or Natural Resources Wales registers.
- Make further enquiries of the seller, landlord or borrower. The extent and type of enquiries to be made will depend on whether the land and property to be transferred is for residential or commercial use.
- Make full searches of any public registers regarding the site and adjacent land.
- Suggest to your client that an independent site report from a commercial provider is obtained. This may help your client to assess the risks involved and, if applicable, to learn what remedial works might be required. In doing this, you should consider your client's intended use of the land. If it becomes clear that the intended use will not be possible due to contamination, you should advise your client and seek specific instructions as to whether to proceed.
- Suggest that your client considers obtaining an independent valuation of the property. A reduction in the market value of the property as a result of contamination may lead to the buyer requiring a price reduction. It may also lead to a lender withdrawing from, or imposing additional conditions in, their offer.
- Consider and advise your client of the use and effect of appropriate contractual protections. For example, by including exclusion and indemnity clauses and apportionments, warranties, or by making the contract conditional upon the seller complying with any remediation notices, to the buyer's reasonable satisfaction, prior to completion.
- Consider and advise your client of the appropriateness of obtaining an environmental insurance policy. Such policies are widely available to cover the costs of remediation of both undetected and disclosed contamination and related liabilities. However, such policies may contain limitations on what and who they cover. The amount of any premium, the level of excesses and the imposition of certain conditions are important factors to be considered in selecting a policy.
3.2 Steps to be taken when acting for the seller or landlord
Although Part 2A contains provisions which may exclude the seller from liability in certain situations (see section 2.3), it may not be possible for the seller or landlord to completely free themselves from liability in relation to a site, particularly if the site is a commercial one. For example, a seller may remain liable for any breaches of consents or legislation committed while the seller was the site owner or in possession.
A seller or landlord will be particularly concerned where a buyer's proposed change of use of the land may expose the seller or landlord to liability for contamination that they had caused or knowingly permitted while they owned the land, but which had not been an issue at the time. For example, if contaminated land was used as a car park when owned by the seller, but the buyer wishes to change its use to residential.
If you are acting for a seller or landlord, you should ensure that you obtain any necessary contractual provisions and indemnities in order to minimise your client's liability.
3.3 Remediation notices
In some cases the issue of a remediation notice may be contentious, having regard to independent expert reports.
In this situation, you should advise clients of the appeals process and the costs and risks associated with challenging the notice.
You should only act on instructions to challenge a remediation notice if you have the requisite skills and experience to do so.
3.4 Unresolved contamination
If matters relating to contamination cannot be resolved, you should consider advising your clients to withdraw from the transaction and make a note of the advice given.
Different clients, including lenders, will have different appetites for risk.
Where your client is fully aware of the contamination but wishes to proceed, or if your client provides instructions to proceed with the transaction, notwithstanding advice to the contrary, you should reiterate the risks to the client in writing, and obtain their instructions to proceed nonetheless - in writing, if possible.
4 Conveyancing: specific transactions
Where contamination is a risk in relation to leasehold property, you should consider whether the usual repair, service charge and statutory compliance obligations transfer remediation liability from the landlord to the tenant, and advise accordingly.
You should also advise your client on any specific environmental clauses in the lease and the implications of such clauses.
Sections 5.4.4 of the Council of Mortgage Lenders (CML) Handbook and section D.11. of the Building Societies Association (BSA) Mortgage Instructions require you to advise your lender client of any contaminated land entries revealed by a local authority search.
You should check Part 2 of the CML Handbook, or the specific requirements section of the BSA Mortgage Instructions to find out if your lender client wants to receive environmental or contaminated land reports (as opposed to contaminated land entries revealed in the local authority search).
Where contaminated land entries are revealed in the local authority search, you will need to seek instructions from your lender client on whether they wish to proceed with the transaction.
In enforcement cases, you should consider and advise your lender client whether to appoint receivers rather than risk remediation liability as a class B person, being a mortgagee in possession.
4.3 Share sales and asset purchases
You should consider recommending that your client obtains specialist, technical advice on liabilities, indemnities and warranties and make detailed enquiries.
5 More information and products
5.1 Law Society publications
5.2 Other guidance
DEFRA Land contamination: risk management.
5.3 Law Society Practice Advice Service
The Law Society provides support for solicitors on a wide range of areas of practice. Practice Advice can be contacted on 020 7320 5675 from 09:00 to 17:00 on weekdays or by visiting the Practice Advice Service webpage.