Contamination is a real risk for owners and occupiers of petrol forecourts. A leaking tank or pipe could contaminate surrounding land, leading to significant liabilities. Whilst it is important to prevent contamination in the first place, this article focuses on the respective positions of a buyer and seller, or landlord and tenant in a sale of or lease of a petrol station.
Contaminated land regime
The contaminated land regime aims to remediate historic contamination, not punish the original contaminators. This can leave parties uninvolved in any contamination having to foot the bill for clean-up costs.
Contamination is defined as the presence of substances in, on or under land which cause significant harm to the environment or human health or a significant possibility of harm. It also includes actual, or the significant possibility of, pollution to ground or surface water.
Where contamination is found, local authorities will issue remediation notices on ‘appropriate persons’. These are classified as:
- Class A – persons who caused or knowingly permitted contamination.
- Class B – current owners and occupiers of the land.
Often, contamination is historic and no Class A person can be found. In this case, Class B persons will be responsible for remediation even if they did not cause, and were not aware of, contamination. Failure to remediate is an offence.
Remediation can be extremely expensive and reduce the value of a property.
‘Buyer beware’ applies – whilst the seller cannot lie, they are not obliged to inform the buyer of any issues. The buyer’s solicitors therefore need to raise the correct enquiries and commission environmental reports.
These range from a desktop report, to a phase 2 environmental report which carries with it significant cost. The buyer should ensure before committing to a transaction that the seller will allow it to carry out a phase 2 investigation as this may include intrusive works.
The contract may permit the buyer to withdraw if contamination is discovered and it should also set out the liability of the parties. Generally, liability for contamination prior to completion remains with the seller, whilst new contamination is the buyer’s responsibility. But all is open to negotiation!
A seller may include a clause stating that the buyer has had a full opportunity to investigate the property and its own environmental reports. The buyer should verify that it is able to rely on historic reports. It may be prudent to seek a collateral warranty from the author of the report.
If there is localised contamination, a buyer may accept a price reduction in exchange for environmental liability. This is risky for the buyer – if the contamination costs more than anticipated to remediate, the buyer may have to pay regardless.
Environmental liability insurance may be available to cover remediation costs and lost income. Insurers will want to know the history of the land and may require environmental surveys.
Enforcement of Warranties and Indemnities
Warranties are a statement by a seller as to a position. A breach of warranty will only give rise to a successful claim in damages if the buyer can show that the warranty was breached and that the effect of the breach is to reduce the value of what has been acquired. The onus is therefore on the buyer to show breach and quantifiable loss.
An indemnity is a promise to reimburse the buyer in respect of a particular type of liability, should it arise. The purpose of an indemnity in an acquisition context is, broadly speaking, to shift the risk of a particular event or matter to the indemnifying party and to allow the indemnified party to recover on a pound-for-pound basis in respect of that matter or event.
Warranties and indemnities are all well and good but are no replacement for good due diligence. Remember that any action against your buyer or seller, landlord or tenant is only worth as much as that party.
It is important to be aware of environmental liability when selling, buying or leasing a petrol station. Due diligence is the key here. Make sure you know what you are buying or leasing. If you are selling make sure you understand your potential future liability. Most of all, do take expert advice!
This article also features in Petrol Heads-Up here.