Environmental liability in property transactions

For guidance on any matters related to commercial property, contact the team at JMW today by calling us on 0345 872 6666.

Environmental law has become an increasingly material consideration in property transactions over the last decade since Part 2A of the Environmental Protection Act 1990 came into force. Contaminated land is land in such a condition that it causes or is deemed likely to cause significant harm or to cause pollution of controlled waters. Costs for cleaning up contaminated land can stretch to millions of pounds. It is therefore essential to identify whether this is a potential concern in any transaction and, more importantly, who should take responsibility for it.

Criminal offences

In addition to clean-up liability, it is a criminal offence to deposit, knowingly cause, dispose of, recover, treat or keep controlled waste without a licence or in a way that is likely to cause pollution or harm to health. In the worst case scenario, a company could be found guilty of corporate manslaughter if it is deemed to have caused pollution that resulted in fatal harm to health.

It is possible for a current owner to inherit liability for clean-up costs even if the land in question was contaminated historically. If a Local Authority identifies contaminated land it can serve notice on those responsible to clean it up. If the original polluter or a person who knowingly permitted the land to become contaminated (usually by having knowledge of the pollution and failing to act) cannot be found, liability will default to the current owner of the land regardless of whether or not they caused or were even aware of the pollution.

Even a tenant with a lease term over 21 years can be deemed to be the owner of a contaminated site if their landlord becomes insolvent. The tenant could be liable for any costs associated with cleaning up the contamination by virtue of a covenant in the lease to comply with all statutory requirements that arise during the term of the lease.

Knowing permitters

Classification as a “knowing permitter” requires knowledge of the contamination, the power and opportunity to do something about it and failure to act. This means that it is possible for a potential buyer of a contaminated site to be deemed to be a knowing permitter of contamination if it undertakes environmental investigations on the site that reveal a significant possibility of harm or water pollution being caused and it fails to take preventative action.

In the event that contamination is discovered during the buyer’s due diligence process, should the buyer still want to proceed with the purchase, they should ensure that arrangements are made with the seller to apportion or deal with any future clean-up costs and that they limit their liability as much as possible.

Legal liability for environmental issues is not just a major concern in transactions involving manufacturing sites or polluting industries. A company required to pay clean-up costs can suffer irreparable damage to its reputation as a result of adverse publicity. In these challenging economic times it is essential that due consideration is given to the risk of environmental liability and its financial implications for the party concerned.

Contact JMW

The commercial property team at JMW can advise you in relation to all matters related to environmental liability in property transactions. Call us on 0345 872 6666 or complete the online enquiry form here and allow us to call you back.

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