Contamination monster rises from deep
Copyright: David Lawson
First published: Property Week April 2008
Investors who rushed into property over the last few frenetic years face sleepless nights as yesterday’s bargains turn into tomorrow’s nightmare. But crashing markets may not be the only threat. Like some Hollywood horror epic, a monster is rising from the deep. Home owners and landlords could face huge bills for problems which have been buried for centuries.
Contamination has soared up the agenda as planners force developers onto brownfield sites at the same time as Whitehall and Brussels tighten rules on what is considered safe. Most rely on the assumption that costs can be shunted onto whoever caused the problem under the ‘polluter pays’ principle enshrined in legislation such as the 1995 Environment Act. But the House of Lords has cut that lifeline with a landmark ruling that National Grid Gas [NGG] is not liable for contamination discovered under homes in the Midlands because it took place long before post-war nationalisation and recent privatisation. The current NGG [formerly known as Transco] is not the same legal entity as its long-ago predecessor, even though it inherited the assets.
This could leave anyone on land such as former gasworks, coal workings or rail sidings liable to huge bills. Victims could range from homeowners – including buy-to-let landlords – to investors who have piled into commercial property without fully considering the risks. Cleaning up the site involved in the Lords ruling would have cost home owners £700,000 if the Environment Agency had targeted them instead of bidding to recover costs from NGG.
The problem may seem slight, as only a handful of remediation notices have ever been served. But this could be the tip of an ever-growing iceberg, as the EA is only just getting into its stride and local authorities have been tasked with much wider responsibilities to map every speck of contamination in the country. That could throw up horror stories, with estimates that up to 20,000 contaminated sites in UK will need cleaning up. Development will become more expensive or land prices will fall, throwing a shadow over ambitious government regeneration plans. Builders could become even more reluctant to put homes on reclaimed sites.
Developers can at least be confident they know what lies beneath, as most planning authorities now demand contamination studies, and risk analysis is becoming more common. But some investors could be in for a shock when ancient problems are uncovered in supposedly clean areas covered by generations of development. Bristol, for instance, was discovered by environmental consultant Landmark to have extensive problems beneath the surface from centuries-old industry, making it one of the most polluted cities in the UK.
Investors who took little notice of such risks in the boom because they expected to buy and selling property quickly could find their exit blocked, says Stephen Tromans, a barrister and editor of Contaminated Land, published by Sweet & Maxwell. ‘It means they can’t rely on passing on the cost to the original polluter,’ he says. ‘Where the company is no longer in existence the current owner is now liable for the cost of the clean up.’
The same will apply to land contaminated by other former nationalised bodies and possibly to long-extinct local authorities which operated polluting activities such as landfill sites or incinerators. Laws requiring local authorities to inspect land periodically for contamination will increase the likelihood of problems being discovered, says Tromans. ‘Although the legislation came into force in April 2000, only now are we starting to see appreciable numbers of sites formally identified and clean-up being required.’
If a local authority is unable to trace the original polluter it can pass on the cost to the current owner provided that this will not cause hardship. This may provide very little protection for homeowners, however. Even if they have modest savings, they may be expected to use them to help to cover the cost. Local authorities may take a charge over a house to secure the cost, raising problems for those who are struggling to meet mortgage payments and want to sell.
Mortgage lenders now demand risk assessments but this will only cover loans made in the last few years. And even clean bills can suddenly be stained as new materials are added to the list of contaminants requiring treatment, such as the coal tar in the Midlands site, which cost up to £70,000 per property to remove from affected gardens.
The government is fighting a rearguard battle against EU plans to clean up contamination by enforcing the Soil Framework Directive in 2008. This would have a serious impact on construction costs by limiting ‘soil sealing’ with concrete and tarmac, which prevents rain filtering through soil and eliminating contamination through natural bacterial action. Governments would also be required to identify every potentially contaminated site and demand risk assessments which give buyers detailed analysis of any problems, much like the despised HIP does for homes.