Evaluating land banks – getting the remedial cost right

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Courtesy of WSP | Parsons Brinckerhoff

The current economic conditions have left few sectors of the economy with the level of pain currently being suffered by the property industry, particularly in the UK.

Suddenly, even some of the leading property companies are being spoken of as needing to divest assets and at worst, as being takeover targets as liquid investors continue to see the longer term value contained in their portfolios and land banks.

Quantifying environmental liabilities would be a critical part of the valuation process, especially for development land. Cumulative values will be material, but un-commercial, conservative advice could quickly disguise the true value contained in a portfolio.

So what should you be looking for your consultant to do?

If available, use the existing reports prepared to aid the original acquisitions. Many may be old and even non-assignable, but the valuable information will balance out the risk.

Where no information exists, take a screening approach. Most sites will probably not require material levels of remediation. This can often be identified in a few hours’ work, leaving longer for those sites with greater risks.

Leverage their experience of delivering remedial contracts as part of development schemes. Such projects require a consultant to learn what really is likely to be required, utilise innovative design and economies of scale to lower remedial costs.

Highlight where liability may lie. Whether contractually, or relying on the polluter pays principle, although the consultant cannot give legal advice, he should not presume that the legal team has spotted every reference to third party responsibilities.

Guide on the land remediation tax relief opportunities; both those already being claimed for and the currently untapped opportunity.

Consider the opportunities for transferring problematic liabilities to a third party. The consultant should guide on the opportunities for risk transfer such as via WSP’s Active Transfer product or conventional insurance.

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