There is a big financial risk to consider when purchasing potentially contaminated land. A well-known concept of European environmental law is the ‘polluter pays’ principle. This means that where pollution is present in land, the party responsible for the pollution is responsible for paying damages for any harm done to the environment.
However, what happens if the polluter cannot be found, is unknown, no longer exists or becomes bankrupt or insolvent? And what happens if the source of pollution cannot actually be traced?
In such instances, UK legislation indicates that the landowner can be held responsible and may be liable to pay broad compensation. Therefore, when considering whether to purchase land that is contaminated or has the potential to be contaminated, it is essential to think carefully about the financial risk and to take practical preventative measures where possible:
- The seller may agree to retain some of the liability, and if this is the case a well drafted sale agreement can protect you to some extent. However, the seller is likely to want to be able to cap their liability at a certain level.
- Consider re-negotiating the heads of terms. If the environmental report(s) comes back with adverse results, go back to the seller and ask if there can be any movement on the purchase price to take into account the results of the report(s).
- Consider whether an insurance policy can be taken out to protect you. Will the seller agree to put this policy in place for you or reduce the purchase price accordingly to take into account the additional cost? However, always be wary that there will be a limit to the indemnity that an insurance policy can provide and you will be liable for everything over and above this if damages do become payable by you.
The most important point is to always think carefully where contaminated land is concerned, always have in mind the possibility that any liability for compensation could become your responsibility. Consider carefully whether the risk is viable, if the purchase price is sensible in the circumstances and research any insurance policies thoroughly before becoming contracted.
Contact Berwins today on 01423 509000 for more information on Commercial Property matters.