Pre-contract searches and enquiries - Environmental searches

Learning Outcomes

This article explains the role and importance of environmental searches within the conveyancing process. It details the types of environmental searches available and the key legal principles governing potential liability for contaminated land under the Environmental Protection Act 1990. After reading this article, you should be able to identify when environmental searches are necessary, interpret their results, and advise clients on the associated risks and potential mitigation strategies, such as indemnity insurance, as required for the SQE1 assessments.

SQE1 Syllabus

For SQE1, you are required to understand the purpose and implications of environmental searches from a practical conveyancing context. You will need to identify potential environmental risks and advise clients accordingly.

As you work through this article, remember to pay particular attention in your revision to:

• The reasons for conducting environmental searches in property transactions.
• The concept of contaminated land under the Environmental Protection Act 1990, Part 2A.
• The potential liabilities for landowners regarding contaminated land, including remediation costs.
• The different types of environmental searches available (eg desktop reports, specific searches).
• Interpreting the results of environmental searches and advising clients on the findings and potential solutions.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Under which primary piece of legislation is the regime for contaminated land established in England and Wales?
   1. Water Resources Act 1991
   2. Environmental Protection Act 1990
   3. Town and Country Planning Act 1990
   4. Environment Act 1995
2. Who bears the primary responsibility for the remediation costs of contaminated land under the 'polluter pays' principle?
   1. The current landowner
   2. The local authority
   3. The person who caused or knowingly permitted the contamination
   4. The Environment Agency
3. Which type of environmental search provides an initial assessment based on existing records and historical data?
   1. Phase II Intrusive Site Investigation
   2. Desktop Environmental Report
   3. Flood Risk Assessment
   4. Asbestos Survey

Introduction

Pre-contract searches and enquiries are a critical part of the due diligence process undertaken by a buyer's solicitor. Among these, environmental searches play an important role in identifying potential environmental liabilities associated with the property. Understanding the potential risks, the relevant legal framework, and the practical steps involved in environmental searches is essential for advising clients effectively in property transactions.

Contaminated Land Regime

The primary legislation governing contaminated land in England and Wales is the Environmental Protection Act 1990 (EPA 1990), specifically Part 2A, which was inserted by the Environment Act 1995.

Definition of Contaminated Land

Part 2A of the EPA 1990 defines contaminated land as any land which appears to the local authority in whose area it is situated to be in such a condition, by reason of substances in, on or under the land, that:

• Significant harm is being caused or there is a significant possibility of such harm being caused; or
• Significant pollution of controlled waters is being caused or there is a significant possibility of such pollution being caused.

Key Term: Contaminated Land
Land where substances could cause significant harm to people or protected species, or significant pollution of surface waters or groundwater.

Local authorities have a duty to inspect their areas to identify contaminated land and maintain a public register of contaminated sites.

Liability for Remediation

The regime establishes a framework for determining liability for the remediation (clean-up) of contaminated land. The guiding principle is the 'polluter pays' principle.

Key Term: Polluter Pays Principle
The principle that those who cause pollution should bear the costs of managing it to prevent damage to human health or the environment.

Liability rests primarily with those who ‘caused or knowingly permitted’ the contaminating substances to be in, on or under the land (Class A persons). If, after reasonable enquiry, no Class A person can be found, liability passes to the current owner or occupier of the land (Class B persons).

This potential liability for current owners, even if they did not cause the contamination, highlights the importance of environmental searches during the pre-contract stage. A buyer could unknowingly acquire significant clean-up costs.

Remediation Notices

Once land is formally designated as contaminated, the local authority (or the Environment Agency for certain 'special sites') must serve a remediation notice on the appropriate person(s) specifying the required clean-up works and the timeframe for completion. Failure to comply with a remediation notice is a criminal offence.

Key Term: Remediation Notice
A notice served by a regulatory authority requiring action to be taken to clean up contaminated land.

Types of Environmental Searches

Several types of environmental searches are commonly used in conveyancing.

Desktop Environmental Reports

This is usually the first step and involves a review of databases and historical records relating to the property and surrounding area.

Key Term: Desktop Environmental Report
A report compiled from existing data sources (eg historical maps, regulatory records, geological data) to provide an initial assessment of potential environmental risks at a property, without a site visit.

These reports typically assess risks from:

• Historical land use (eg former industrial sites, landfill sites, petrol stations).
• Proximity to potentially contaminative activities (current and past).
• Flood risk (though specific flood searches are often separate).
• Ground stability issues (eg mining, subsidence).
• Radon gas presence.
• Other factors like overhead power lines or telecommunication masts.

A desktop report will classify the potential risk, often indicating whether further investigation is recommended.

Worked Example 1.1

A buyer is purchasing a residential property built on land previously occupied by a petrol station. The desktop environmental report highlights a potential risk of soil and groundwater contamination from fuel leakage. What advice should the solicitor give?

Answer: The solicitor should advise the buyer of the potential risk identified in the report and the implications of liability under the EPA 1990 Part 2A regime. They should recommend commissioning a Phase II Intrusive Site Investigation to ascertain the actual level and extent of contamination before proceeding further with the purchase. The buyer should also be advised to inform their lender, as the findings may affect the mortgage offer. Depending on the Phase II results, the buyer might seek a price reduction, require the seller to remediate, or withdraw from the purchase.

Specific Searches

Depending on the location and nature of the property, or the findings of a desktop report, more specific searches may be necessary:

• Flood Search: Assesses risks from river, coastal, surface water, and groundwater flooding. Provides more detail than the flood risk indicators often included in broader environmental reports.
• Mining Search (eg CON29M): Essential in areas with a history of coal or other types of mining, revealing information about past, present, and future mining activities, subsidence claims, and mine entries.
• Radon Gas Search: Identifies if the property is in an area known for high levels of radon gas, a naturally occurring radioactive gas. If levels are high, remedial measures might be needed.
• Chancel Repair Liability Search: While not strictly an environmental search, it identifies potential liability for contributions towards church chancel repairs.

Environmental Surveys (Phase I and Phase II)

If initial searches indicate a significant risk, more detailed site investigations may be required:

• Phase I Environmental Site Assessment: Usually involves a site walkover and more detailed review of historical and current site usage and surrounding areas, building upon the desktop report.
• Phase II Intrusive Site Investigation: Involves physical sampling of soil, groundwater, and potentially building materials to test for specific contaminants. This provides definitive evidence of the presence and extent of contamination.

Exam Warning

Liability for contaminated land can be substantial, potentially running into hundreds of thousands or even millions of pounds for remediation. Always advise buyer clients of the potential risks, even if initial searches seem clear, especially for commercial or previously industrial sites. Ensure lenders are fully informed of any adverse findings.

Practical Implications in Conveyancing

The results of environmental searches have significant practical implications:

• Informing the Buyer: The primary purpose is to inform the buyer of potential risks and liabilities.
• Reporting to Lender: Lenders require reassurance that the property offers good security. Adverse environmental findings must be reported, and may lead to refusal to lend, retention of funds, or specific conditions requiring remediation or insurance.
• Negotiation Point: Identification of contamination risk can be used to negotiate the purchase price or require the seller to undertake remediation work before completion.
• Contractual Provisions: Special conditions might be added to the contract, such as warranties from the seller regarding contamination or obligations to remediate.
• Insurance: Environmental indemnity insurance may be available to cover potential future remediation costs or third-party claims, particularly where risks are identified but cannot be fully quantified or remediated pre-completion.

Revision Tip

Remember that environmental liability under Part 2A EPA 1990 is distinct from planning controls related to contamination. Planning permission for development might include conditions requiring site investigation and remediation, but this does not remove the existing statutory liability under the EPA.

Key Point Checklist

This article has covered the following key knowledge points:

• Environmental searches are an essential part of pre-contract due diligence to identify potential contamination risks and liabilities.
• The primary legislation is the Environmental Protection Act 1990, Part 2A, which defines contaminated land and establishes liability for remediation.
• Liability primarily falls on the 'polluter' (Class A persons), but can pass to the current owner/occupier (Class B persons) if the polluter cannot be found.
• Desktop environmental reports provide an initial risk assessment based on historical and database information.
• Specific searches (eg Flood, Mining) and more detailed site investigations (Phase I/II surveys) may be required depending on the property and initial findings.
• Search results must be reported to the buyer and lender, and may impact the transaction terms, price, or require remediation or insurance.

Key Terms and Concepts

• Contaminated Land
• Polluter Pays Principle
• Remediation Notice
• Desktop Environmental Report