What is contaminated land?
The issue of contaminated land can have a large significance on commercial property transactions. If the land in question is contaminated, or there is a risk that it is contaminated, a potential buyer may not want to proceed with the purchase.
A piece of land is said to be contaminated when, according to the local authority, substances in, on, or under it:
- Cause significant harm to be done, or raise a significant possibility of such harm being done; or
- Lead to the pollution of controlled waters or the likelihood of such pollution.
Harm is defined as 'harm to the health of living organisms or other interference with the ecological systems of which they form part and, in case of man, includes harm to his property'.
Consequences of contaminated land
The presence of contamination in land can have serious implications. To put it in financial terms, contamination makes it more difficult to sell or mortgage the land. Furthermore, the use of the land for certain purposes may be impossible or only possible if extensive and expensive clean-up works are undertaken. Legally speaking, there are a number of risks associated with contaminated land:
- Potential civil liability for damage resulting from migrating pollution. If a landowner should have foreseen the consequences of any migrating pollution, they will be liable for any damage caused without any further proof of fault or negligence being required
- Potential criminal liability for offences resulting from migrating pollution
- If an offence is committed by a company, then any of its directors, managers, or secretaries may be held liable if they are shown to have consented to, or conspired in, the migrating pollution, and/or if they are shown to be negligent
- Planning constraint restricting the scope of development of contaminated land
Reducing the risk
Given the financial and legal consequences of contaminated land, those involved in commercial property transactions should take every possible step to ensure that the site they are buying, leasing or accepting as security for a loan is not contaminated. If it is contaminated, appropriate measures should be taken to protect the buyer in the transaction. These are a summary of the steps to be taken:
- Make enquiries with the various regulatory bodies such as local authorities and the Scottish Environmental Protection Agency to see if any pollution incidents have occurred on the site
- Make enquiries with the occupier(s) of the site
- Research the previous planning history of the site
- Check through the title deeds to see if there are any documents relating to previous use of land. For example, a history of heavy industrial use will give greater cause for concern than one of agricultural use
- Obtain an environmental search over the property
Conduct a survey
If the document check establishes the likelihood of contamination, a survey of the site may be considered. This will be expensive but the risks involved are great which may justify the costs.
Drafting of documents
The buyer may consider inserting the following terms into a commercial sale and purchase of land contract in order to provide for contamination:
- Make the contract conditional on satisfactory site investigation or on clean-up by the seller
- Include an indemnity from the seller against any future clean-up costs or against damages which are payable as a result of past contamination or pollution (i.e. the seller would have to pay the buyer whatever it cost the buyer to correct the problem)
- Include a warranty from the seller that they have no knowledge of any pollution being present on the site and that they have made full disclosure to the buyer of all relevant information
Depending on the bargaining power of the parties, a buyer may seek a reduction in the purchase price to cover the likely clean-up costs. If the buyer considers the risk too high, they can withdraw from the transaction altogether.