Contaminated land may be sold on before remediation takes place, provided the purchaser and the local authority get the full facts. By Valerie Fogleman
Liability to remediate contaminated land in England may be transferred if the company selling or, in some cases, letting fulfils certain requirements. Here are answers to common questions about transferring liability.
Who can transfer remediation liabilities?
A Class A person (see box) can transfer remediation liabilities by selling land on which he has caused or knowingly permitted contamination if he provides information of the contamination. He will then be excluded from liability under the “sold with information” test.
A “sale” occurs if the freehold is transferred or a lease or sublease of over 21 years is granted or assigned, provided the lessee or sublessee is entitled to receive the rack rent of the land in his own right or as a trustee. The following criteria must also be present:
” Both the seller and buyer must be members of the liability group for the significant pollutant linkage when the enforcing authority determines who must decontaminate the land. A significant linkage is where a pollutant and a pathway exists by which the pollutant is causing significant harm to a receptor or there is a significant risk that it could do so. A liability group exists when there is more than one appropriate person in respect of the significant pollutant linkage.
” The sale must be at arm’s length. If it is part of a broader agreement or group of transactions, the seller must show that its net effect was at arm’s length.
” Prior to the sale having become binding, the buyer must have “had information that would reasonably allow that particular person to be aware of the presence on the land of the pollutant [by reason of which the land is subject to remediation] and the broad measure of that presence”.
” The seller must not have materially misrepresented the implications of the pollutant’s presence to the buyer.
” The seller must not have retained any interest in, or right to occupy or use, the land after the sale.
The final criterion is subject to the following exceptions:
” an easement or equivalent statutory right
” a statutory undertaker’s right to conduct works or install equipment
” a reversion in a long lease
” a restrictive covenant or equivalent statutory agreement.
Does the test apply to the acquisition of shares of a company which owns contaminated land?
No. There must be a “sale” of the land itself.
Can a site have been bought with information that it is contaminated prior to Part IIA coming into force in England in April 2000?
Yes. In commercial transactions since the beginning of 1990, a “large commercial organisation or public body” will normally be deemed to have the necessary information if the seller permitted it to conduct its “own investigations of the condition of the land”.
Why would a company voluntarily become a Class A person by buying or leasing contaminated land?
The situation is not clear cut because a buyer of contaminated land does not necessarily become a “knowing permitter”. For example, the buyer may consider that the land is not contaminated land or may be unaware of potential environmental liabilities associated with it.
If a holding company sells contaminated land with information to a subsidiary, is it excluded?
If the holding company and subsidiary retain that status when an enforcing authority issues a notification identifying the land as contaminated land, the holding company will not be excluded from liability.
If a person buys land with information that it is contaminated, will he be excluded from liability if he sells the land?
It depends. If the land is subsequently sold with information that it is contaminated, the seller will be excluded in lieu of the buyer if the buyer can be “found” when an authority determines that the land is contaminated. If the land is not sold with such information, the seller will not be excluded.
Can a buyer avoid assuming liability for remediating contaminated land?
To a limited extent. The buyer may enter into an agreement with the seller to allocate potential or actual remediation liabilities between themselves. An enforcing authority should “generally” give effect to the agreement if it is provided with a copy of it, none of the parties challenges it and its application does not result in the authority bearing some or all of the remediation costs due to hardship or other considerations affecting the buyer.
Another method of transferring the risk of remediation costs is for the seller and/or buyer to purchase an insurance policy which covers the cost of decontamination that was not detected at the inception of the policy.
Is a company or other person necessarily liable to remediate contaminated land which it owns or occupies if it suspects or knows that the land is contaminated?
No. The relevant local authority must have determined that the land is contaminated.
The owner or occupier is not under any duty to notify the local authority of his suspicions. If he does not get rid of the contamination, however, the cost of doing so will probably increase. He is also likely to encounter difficulties or a reduced price when he plans disposal of the land.
Is the “sold with information” test the only way to transfer liability under Part IIA?
No. A person who sells contaminated land can also transfer remediation liabilities by accepting a lower price on condition that the buyer remediates the contamination or if he makes a payment for its remediation.
If the buyer fails or fails adequately to get rid of the contamination, the seller will be excluded from liability if, when an enforcing authority requires the land to be remediated, the buyer can still be “found”. The price reduction or the payment must have been sufficient, when made, to pay for the remediation and the contract must specify that the payment or price reduction was for such remediation.
Is there an exemption from liability for “innocent purchasers”?
No. Some protection is provided for a person who acquires a freehold or leasehold interest in land that is subsequently discovered to be contaminated so long as he does not become a Class A person.
An enforcing authority should consider reducing the owner’s or lessee’s remediation costs if he demonstrates to the authority that:
” he took measures that would have been reasonable prior to acquisition to establish whether any pollutants were present;
” he did not know and could not reasonably have been expected to know of the presence of the pollutant that must be remediated when the acquisition occurred; and
” it would be “fair and reasonable”, when considering the interests of national and local taxpayers, for the owner or lessee not to pay the entire cost of remediating the site.
In applying the criteria, the enforcing authority should consider reasonable safeguards for various types of transactions and whether the buyer is, for example, a major company or a homeowner. DETR Circular 02/2000 does not specify whether it would ever have been reasonable not to have taken any measures to discover whether pollutants were present on the land.
As indicated above, the protection applies to owners or occupiers only if they have not caused or knowingly permitted the presence of a pollutant on their land. Thus if, for example, a landowner gains knowledge that his land is contaminated before an authority notifies him and he fails to decontaminate it after having had a reasonable opportunity to do so, he would become a Class A person and would not be entitled to a reduction.
Can a seller transfer all environmental liabilities by selling land with information that it is contaminated?
No. The ability to transfer liabilities so that the transferor is legislatively excluded applies only to the liability to remediate contaminated land under Part IIA. Liabilities to remediate water pollution under the Water Resources Act 1991, other statutory liabilities and common law liabilities cannot be legislatively transferred.
Valerie Fogleman is head of the environmental liability group at solicitors Barlow Lyde & Gilbert
|
What parties are liable for contaminated land remediation? |
|
Some relevant concepts explained |
|
” A company or other person that has caused or knowingly permitted a substance to be in, on or under land such that the land is posing significant harm or a significant possibility of significant harm to specified “receptors” is liable for remediating the contamination under Part IIA of the Environmental Protection Act 1990. Such a person is known as a Class A appropriate person. ” Receptors are people, designated ecological areas, commercial and domestic crops and animals, wild animals subject to hunting or fishing rights, buildings and “controlled waters”; that is, surface, ground or coastal water. ” If a Class A person cannot be “found” by an enforcing authority (the local authority in whose area the land is located or, for “special sites”, the Environment Agency) after a “reasonable inquiry”, the owner or occupier of the land – a Class B appropriate person – is liable. |
