Hugh Masters-Williams, a Senior Manager of ENVIRON UK based in Cardiff, explains the process and development benefits.
The technical solutions to contaminated and Brownfield land are well established. The commercial issue is what to do, and when. With encouragement from the government, the re-development and re-use of former industrial sites has become financially attractive.
The unwary buyer may be tempted by the prospect of a healthy profit, but buyers of these sites need to take extra care—realising this healthy profit is a function of the time and effort spent in the planning and investigation of the site, mitigating potential liabilities. This is not just an issue for developers; this also has far-reaching consequences for the future purchaser and often the lessee of commercial facilities.
Due diligence is now an essential part of almost
every significant transaction where development land is
being bought or where Merger and Acquisition (M&A) activity is taking place. While the definition of
‘significant’ in this context depends upon the attitude of the companies concerned, experience suggests that the greater the resources and experience, the greater the need for a robust due diligence process. Equally vital is the need to engage experienced, reputable due diligence practitioners, since the resulting report must be ‘bankable’. This activity forms a large part of ENVIRON’s work across the world, especially in the M&A sector.
In the past, some housing developers have taken a less rigorous approach to the redevelopment of Brownfield sites and addressing on-site contamination. Once properties are sold, liability is fragmented and the balance shifts. Individual house owners depend upon their legal searches and the planning process to protect their interests. In this respect, it is interesting to note that of the 304 sites in England and Wales where the site has been determined as being ‘contaminated’ under the terms of the legislation that relates to contaminated land, commonly known as ‘Part IIA’1, 175 are domestic properties, and the notices have been served on the individual property owners. Admittedly, these properties are all on two housing estates, but it is clear that contaminated land liability is not confined to the redevelopment of former industrial property previously used for commercial purposes.
This legislation, which has been the subject of considerable discussion over many years, has been slow to impact on business processes, but has managed to deliver a surprise—the first case in which a prosecution took place. This case related to a site where a pit had been filled and the fill material had generated landfill gas. That fact, in itself, presented no problem until the site was developed for housing purposes. The court decided that the contractor who undertook the development was responsible for dealing with the gas problem, because it was the development of the properties that completed the ‘pollution linkage,’ or, in other words, the combination of a source of hazard (in this case the gas), a pathway (gas migration through the ground), and a receptor (the residents in the new properties) required to define the land as ‘contaminated’ under the terms of the Act.
There was no risk until all three elements of the linkage were in place. Responsibility for the problem lay with the person who completed the linkage, and not with the person who placed the fill on the site. However, there is good news. ENVIRON’s Property Group is dedicated to understanding the needs of the property investment and development markets. We have been involved in the successful development of commercial properties on gassing landfill sites, which several years ago would have been regarded as ‘too difficult’ to develop or representing too high a risk for financial institutions to accept for investment purposes. With ENVIRON’s support, these sites have been purchased, developed and sold, creating value in the redevelopment process. Of greater significance is the fact that the liquidity of these assets has been demonstrated through the sale of the properties to other financial institutions—sales where the buyer has carried out thorough due diligence and ENVIRON’s work has been subjected to close technical scrutiny by the purchaser’s advisors. This demonstrates that these properties are tradable assets—they can be bought and sold—provided the quality of the technical solutions is sufficiently high and the solutions commercially robust.
Asset liquidity is a crucial consideration for property development, and one which, over time, will increase the confidence of the financial markets in property developed on Brownfield sites as secure investments. This, in turn, should encourage developers to take a more carefully considered view of Brownfield sites that they may previously have shied away from. Supported with high-quality and commercially sound advice, successful development of Brownfield sites can be extremely profitable.
1. Part IIA of the Environmental Protection Act 1990, which came into force in England in 2000 and in Wales in 2001.
Hugh Masters-Williams is a Chartered Engineer and Chartered Environmentalist who manages the Cardiff office of ENVIRON. The firm offers advice to its clients in a wide range of environmental practices, including all aspects of Contaminated Land Investigation and Remediation, Due Diligence services, IPPC, Environmental Management Systems, Environmental and Compliance Auditing, Environmental Impact Assessment and Strategic Environmental Assessment, the ecological issues associated with development, waste management issues and landfill gas monitoring and control.