It has been over 18 months since the Contaminated Land Regime first came into force. The initial gestation period has ended and we are now approaching an important phase. The vast majority of local authorities have published their inspection strategies and are starting the proactive task of investigating their areas.
Technical expertise is developing rapidly. And there is a heightened awareness of civil and criminal liabilities. Interest from landholders, developers and others in the property business is growing.
The Contaminated Land Regime enacts Part IIA of the Environmental Protection Act 1990. It introduces a duty on local authorities to identify and ensure the clean up of contaminated sites. To combat concerns over blight, the regime is based on the ‘suitable for use’ approach and, for the first time, includes a legal definition of contamination. It also outlines a hierarchy of liability to improve the system of identifying sites and to bring transparency. Many people see this as a welcome improvement, raising the issue of environmental liability within organisations that may have previously unwittingly exposed themselves to a variety of liabilities.
In England (the regime was introduced much later in the rest of the UK), the Environmental Agency recently announced that 91% of inspection strategies are either published or in the final stages of consultation. The strategies detail a local authority’s method and priorities for inspection. They also serve to tighten up current regulatory controls by acting as a local guidance document, outlining how the regulations will be applied in the future.
The strategies describe how the local authority will investigate and identify land contamination, what it will investigate and what its priorities are. Not every authority takes the same approach, and their strategies reflect the local differences in environment, geology, industrial land use or council structure. For example, Bristol City Council is basing inspection on a hierarchy of past use, with the ‘use; manufacture and disposal of asbestos’ ranked the most hazardous. The Forest of Dean District Council is prioritising areas of population density and those particularly sensitive to any likely effects.
Exactly how these strategies will work is still unclear. Little direct enforcement action has been taken so far, and case law is limited. In the meantime, with the government’s target of 60% of new build on brownfield sites, redevelopment and the control of site clean up will be key drivers.
Crucially, the regime outlines criteria for determining liability. Deciding who is responsible for clean up follows the principles of ‘polluter pays’ and ‘knowingly permitting’ pollution. Initially, liability will fall on Class A persons - the original polluters. Where they cannot be found, liability may fall on Class B persons - the site owners or occupiers. There are several exemptions for Class B persons, but they could potentially include those who acquired a previously polluting company even if it longer exists, or has not occupied the contaminated site for some time.
Whether or not the regime is a driving force is still up for debate. What is widely acknowledged is that it has promoted the issue, increased the technical expertise within local authorities and is vital in the chain of associated legislation. This is particularly evident when dealing with development projects. Despite contaminated land having being a material planning consideration for some time, planners are now better placed to set clean up conditions.
Also, the Environmental Agency now includes a bank of regional contaminated land officers who, together with their Part IIA duties, serve to tighten the link between contaminated land and the protection of groundwater and other resources.
Assessing risks
Contaminated land is not a new issue. Many of the more proactive solicitors, investors and regulators involved have followed the principles of risk management for several years. Case law, such as Cambridge Water (1993), Blue Circle (1998) and Mott McDonald (1998), has dramatically increased awareness of potential civil and criminal liabilities over the past five years. Risk assessments and specific environmental contractual provisions have increasingly become the norm.
Since the legislation is retrospective, it raises issues of residual and potential unknown liabilities. Ignorance does not prevent unexpected claims, regulatory action or bad publicity, as was the case for Portsmouth City Council.
You can risk assess land portfolios to identify inherited liabilities, prioritise high risk sites and eliminate unnecessary action. Environmental due diligence should be a key element of any mergers, acquisitions or land transaction deal. It is often a standard requirement in securing investment.
Risk assessments of this nature require a multi-disciplinary approach involving specialist contaminated land surveyors, environmental lawyers, hydrogeologists, toxicologists and geotechnical engineers. You need to have information on the legal position, the actual state of contamination, practical statutory stance and the financial as well as technical implications. This enables you to make an informed and therefore appropriate decision to mitigate any known contamination risks.
Whether it be for a due diligence, development project or general portfolio assessment, site risk assessments usual comprise three phases:
In essence, contamination only represents a liability if there is a potential to cause significant harm to humans, property, controlled waters (including groundwater) or ecology. How this is determined is by identifying a source (the contamination), a sensitive receptor (humans, controlled waters etc) and a pathway linking the two.
The aim of Phase 1 is to identify potential sources of contamination. These can either be current or historic. Reviewing historical maps, business directories, aerial photographs, site plans and legal records provides information on previous and present land use, owners, and pollution incidents to help identify any potential contaminative uses. Considering the site’s environmental setting (including hydrogeology, ecology, land use) also helps to identify potentially vulnerable areas. Many sites can be ruled out at this stage. Financial and environmental liabilities are low and civil or criminal action unlikely if neither a source nor receptor is found. However, if you identify potential liabilities, you will need further assessment.
Further assessment (Phase 2) involves evaluating the nature, extent and risk posed by contamination to neighbouring vulnerable parties (residential areas, ponds, rivers, groundwater, buildings, Sites of Special Scientific Interest etc). Intrusive investigations are needed, with test boreholes and trail pits being dug to gather soil, water and gas samples. Where you obtain these samples and what you test them for are crucial. They should, wherever possible, be taken in key areas across the site, such as suspected ‘hot spots’ - known chemical storage areas, underground tanks, etc. In some cases, where access is difficult, non-intrusive methods are used such as geo-physical surveying.
Analysis will quantify known levels of contamination. It also aims to determine the sensitivity of the source and probability of a pathway between the two. Successful remediation (Phase 3) requires breaking this pathway linkage. You can neutralise the source of contamination, divert or block the pathway, or remove or change the receptor. A variety of remediation methods are now available. Which you choose will vary from situation to situation, and will depend on the nature of the contamination, the site, the time available and the budget.
These assessments tend to focus on the technical environmental risks. But, at each stage, you also need a full commercial risk assessment to quantify the risk. Such assessments take the technical data and evaluate the commercial exposure against the severity (financial/reputation) and likelihood. This allows you to identify parameters of financial exposure and take decisions on mitigation measures, such as risk treatment, transfer or tolerance.
Transfer
Environmental insurance policies are increasingly used as a solution to potential contaminated land liabilities, particularly in situations when determining liabilities is a difficult process. For land transactions, they are often a viable alternative to indemnities and warranties in driving deals forward, avoiding discounts to the purchase price, and reassuring financiers. They act without the need to prove fault and are often written to cover both parties. More often, however, companies are using environmental insurance to ring fence unacceptable balance sheet exposures and protect long term interests.
During the last few years, the environmental insurance market has grown considerably. We now have a highly competitive and flexible marketplace able to cope with highly complex risks as well as relatively small transactions.
The contaminated land regime has been described as the single most important piece of recent legislation to affect the property industry. But its eventual impact is still somewhat unclear. Initial indications suggest a tightening of control and general increase in expertise both within industry and regulators. However, the majority of contaminated land still lies undetected, leaving many landholders exposed to unquantified risks.
Pending further legal clarification, proactive risk assessment appears to be the most effective tool in averting the potential effects of an unforeseen inspection. It should focus on technical risks and commercial risk exposure, to identify the most appropriate risk strategy mix.
Sue Cooley is a risk management executive, Willis. Tel: 0117 976 9303,
E:mail: cooleys@willis.com
