Turning environmental searches to your advantage
Contaminated land liabilities can bite when you least expect it.
In the Sandridge Part 2A case, a property developer faced over £16 million clean up costs after heavy rain washed chemicals into a chalk aquifer during site enabling works.
For the majority of property transactions, the main environmental concern is when a property lawyer receives a high risk environmental desktop report. The knowledge of potential contamination liabilities could potentially result in a professional indemnity claim if the results of the search are not explained to the client.
So what should you do with the report? – send it to your client with warnings or get tactical advice from an environmental lawyer and the report provider?
The best approach is to do both. Keith Davidson considers the Bird & Bird case and gives some practical tips on how to remove negligence risks and use environmental searches to get the best position in the transaction.
Law firm loses professional negligence case
In the Court of Appeal decision Orientfield Holdings Ltd V Bird & Bird LLP [2015] EWHC 1963, a London law firm had to pay £1.8 million in damages to a former client after one of its property lawyers failed to highlight risks from a planning desktop report.
An offshore property developer instructed Bird & Bird for its purchase of a residential property in St John’s Wood for £26 million. The Plansearch Plus report revealed that a planning permission had been granted for a large development within 250 metres, identified as a New Build education establishment. The property lawyer briefly checked the report but decided there were nothing important to bring to the client’s attention.
After paying the £2.6 million deposit, the client terminated the contract after seeing some planning objection letters against the 6-storey academy development. Orientfield claimed that she has been misled and alleged that Bird & Bird was negligent in not explaining the implications of the planning search.
The Court of Appeal agreed with the High Court judgement that the firm should have provided a summary of the 52 page Plansearch report and explained the results to the client.
With knowledge comes responsibility
The Bird & Bird ruling creates a significant risk for property lawyers.
Although the case relates to planning searches, the stakes are higher with contaminated land liabilities.
The Law Society Practice Note on Contaminated Land recommends that lawyers consider contaminated land risks in every property transaction and advise their clients about
The consequences of acquiring interests in contaminated land, and
The steps that can be taken to assess the risks.
Desktop reports contain lots of information that can impact land value – contaminated land, flood risks, environmental permits, pollution incidents, energy and transport features, ground subsidence and operational risks.
Property lawyers might feel exposed having to identify high risk environmental issues or highlight particular perils associated with landfills, groundwater sensitivity or planning impediments from environmental permits.
Simple steps to remove negligence risks
Law firms should include appropriate warnings in their Report on Title
Explain the liability risks of acquiring contaminated land
Identify the limitations of desktops – e.g no site inspection
Recommend that an environmental consultant or environmental lawyer reviews the report
*Practitioner tip -. Instruct an environmental lawyer to provide a summary of the key issues, explain the liability implications and recommend appropriate next steps.
Taking control of environmental negotiations
Ideally lawyers would refer to a recent ground investigation report to negotiate an environmental indemnity or price chip. It’s rare however that a phase 2 will be available unless you are dealing with a development scenario. Time and cost is also against you – phase 2 reporting can take 6 to 8 weeks.
Help is closer to hand. Property and environmental lawyers can use environmental desktop searches and the various follow up consultancy services to help take control in contract negotiations.
Desktop reports don’t just provide an “early warning” on contaminated land liabilities. They can support requests for contractual protections or environmental insurance.
In the case study below, the search identified a former landfill adjacent to a property near Preston. The report recommended Further Action and the sale contract transferred environmental liabilities to the buyer. By checking additional information, Groundsure’s consultant was able to resolve concerns regarding landfill gas risks for both the purchaser and lender. A price chip was negotiated and the follow up advice helped secure funding from the lender.
https://www.groundsure.com/wp-content/uploads/2019/11/Lender-in-possession-case-study-Final_Nov19.pdf
Solutions when a desktop report requires further action
Next step Price Timescale Comments
Regulatory enquiries £450 10- 21 days Will usually pass a report or help provide clarity on an issue, however 21 days might not be an option.
Phase 1 site walkover £1200+ 1 – 2 weeks Recommended when there are storage tanks, environmental permits or other operational risks.
Indemnity insurance £2,000+ 1 – 3 days The most common solution that satisfies lenders. Need to warn clients about the limited scope of cover.
Site pollution lpolicies >£40,000 3 – 5 days Expensive but plays vital role in larger transactions. Covers regulatory action, third party claims and contractual indemnities.
Environmental law review £500 1 day Environmental lawyer summary of the desktop, liability review and solutions. Can include a legal opinion on whether the property is suitable for purchase/lending.
Getting the best environmental position
Contaminated land risks won’t go away.
It’s important to guide your client to the right support and minimise the risk of professional indemnity claims.
1. Amend the Report on Title with disclaimers to protect the firm.
2. Highlight the options for failed reports and gaps in cover for indemnity policies.
3. When the stakes are high, ask your environmental lawyer and desktop provider for specialist support.