In short, yes! The risk of contamination should be considered in all property transactions whether they are residential or commercial.
In order for a risk of contamination to be present there must be a source, pathway and receptor. In simple terms this linkage could be an historic underground tank (source) which is now leaking into surrounding soil (pathway) and rising to the surface of the land over which humans are walking (receptors).
Whilst a site or a property may, on a visual inspection, appear not to be contaminated, not all contamination is capable of being viewed with the naked eye. It may be the position that the land has many years ago, been used for a purpose which would or could give rise to contamination e.g. the site could be a former chemical works or could be within the vicinity of a former landfill site. It clearly isn’t always possible to establish this simply by visual inspection.
There is a common misconception by buyers of commercial property that environmental issues ought not to be a concern because it wasn’t the buyer that caused the contamination. This is incorrect. Pursuant to Part IIA of the Environmental Protection Act 1990 an “appropriate person” can be liable for remediation of contaminated land. An appropriate person is any person “who causes or knowingly permits contaminated substances to be in, on or under the land” or an “owner or occupier of contamination land” (where the original polluter cannot be located). It is noteworthy therefore that liability for contaminated land is not restricted to owners of land but may also extend to tenants.
The risk of liability for contaminated land can be mitigated by carrying out a desktop environmental search prior to completing the purchase of a property or prior to completing a lease of the property. It is important to note that a desktop environmental search is just that. A desktop search does not involve any form of intrusive site investigation, it is simply a form of search which is carried out based on desktop data available, historic land uses, historic maps etc which may assist in determining former land use of the site and surrounding area. This data can then be used to establish the likelihood of contamination risk attributable to the property.
It is usually the position that an environmental search provider will, based on the information available to it, produce a report with an accompanying certificate indicating whether the property has “passed” contamination risk, requires “further investigation” or has “failed”. If the property has a “pass” certificate, then the search provider will have indicated there is negligible risk of contamination. If the search provider indicates that “further investigation” is required then it may be that further enquiries need to be raised with the vendor or perhaps with the local authority. It could be that planning permission has been issued in respect of the site in recent years and a planning condition was included within the planning permission which indicated that remediation works needed to be undertaken. If evidence can be produced to indicate that remediation works have been undertaken and the local authority has discharged the relevant planning condition then it is likely that the search result can be updated to provide for a “pass” in terms of contamination risk. If the search produces a “fail” then it is unlikely the transaction would be able to proceed without a specialist intrusive environmental survey being undertaken. There is a possibility of environmental indemnity insurance, but it would be difficult to obtain this type of insurance where a search has been generated which indicates there is significant risk of harm.
Purchasers and tenants of commercial property should acknowledge that whilst they may be prepared to take a view on the contamination risk attributable to the property, if they are reliant upon funding from a third party lender, that lender is unlikely to take the same view. It is important therefore that environmental risk is considered in all instances.
If you wish to discuss this or similar commercial property issues please contact our commercial property team by calling 01642 356500/0191 2322574.