A guide to understanding Contaminated Land Legal Indemnity Insurance

Many purchasers only have to hear the words ‘contaminated land’ and they are wary of proceeding with their planned purchase. Conveyancing solicitors report that in these increasingly environmentally aware times, with the importance to home buyers of gardens where they have the ability to grow their own produce, contaminated land is a big concern for both individual buyers and developers.

For some buyers their preferred option is to walk away from their property or land purchase whereas for other buyers and developers risk management and Contaminated Land Legal Indemnity Insurance is the answer. As conveyancing solicitors are warned to be on the lookout for contaminated land issues and environmental risk in every property transaction they undertake, in this guide we take a look at:

  • What is contaminated land?
  • What causes contaminated land?
  • Who determines if land is contaminated?
  • Identifying contaminated land
  • Contaminated land searches and further action reports
  • The Environmental Protection Act 1990
  • What is a remediation notice?
  • Who is liable for contaminated land?
  • What is Contaminated Land Legal Indemnity Insurance?
  • What type of land or property can be covered by Contaminated Land Legal Indemnity Insurance?
  • Can all types of contamination be covered in a Contaminated Land Legal Indemnity Insurance policy?
  • What does CLS Contaminated Land Legal Indemnity Insurance cover?
  • Contaminated Land Legal Indemnity Insurance and commercial premises add on cover
  • Claims on Contaminated Land Legal Indemnity Insurance

What is contaminated land?

Contaminated land is legally defined as land where a substance is either causing or could cause:

  • Significant harm to people, property or a protected species.
  • Significant pollution of surface water or groundwater.
  • Harm to people because of radioactivity.

All ‘nasty stuff’ to use terminology that is more easily understood by the average property purchaser who is either keen to protect their family or not wanting to buy a property that may be hard to sell on if it is situated on land classified as contaminated.

What causes contaminated land?

Unsurprisingly Contaminated Land is normally a man-made phenomenon. For example, contaminated land could be land previously used for:

  • Landfill – the land could be unstable or there could be dangerous gases.
  • Factory – where the factory used the land to dispose of noxious substances.
  • Mine or mill.
  • Refinery or petrol station – where petrol, solvents, oil or tar may have contaminated the land.

Who determines if land is contaminated?

Keen property developers or house buyers will want to know who has designated the land as contaminated land and why. Legally, either the local authority (or the Environment Agency if the land is classed as a special site) can class land as contaminated land. Often land becomes classed as contaminated land after surveys are required by a local authority as part of a historical investigation or as part of a planning application process.

The fact that land is contaminated does not necessarily have to halt the sale or transfer of the land. However, conveyancers rightly say that it is vital that the buyer and their lender understand the contaminated land classification and their options.

Identifying contaminated land

Identifying contaminated land is not always easy as a well-manicured lawn or grassy meadow can hide what is going on under the surface. It is advised in the Law Society Contaminated Land Practice Note that it is best practice to obtain an environmental report to check the land and its former use. This type of report can be commissioned by the likes of FCI, Groundsure or Landmark. The search report will either give a pass or indicate further action.

In some scenarios, a contaminated land search may not have been carried out. This raises a risk but if the buyer wants to proceed in the absence of a report, they can explore the option of either taking out Search Legal Indemnity Insurance, and specifically include lack of environmental search, or take out specialist contaminated land Legal Indemnity Insurance. However, Search insurance will only cover the costs associated with loss in market value as opposed to any remediation costs, unlike a full contaminated land policy which will also ensure the remedial costs involved.

Contaminated Land searches and further action reports

If a contaminated land search report is carried out and indicates ‘further action’ then the buyer knows the land has not received a clean bill of health even though on the surface the property or land may look in pristine condition. This could result in more in-depth specialist searches and even remedial action or the buyer could proceed, perhaps on the basis of renegotiating the property purchase price or the purchase of Legal Indemnity Insurance.

Contaminated Land Legal Indemnity Insurance is available where there has been a search with a ‘further action‘ outcome and even where the prospective purchaser has contacted the local authority, depending on the outcome of their communication with the local authority. For example, if the local authority had been communicated with but not that an investigation under Part 2A of the Environmental Protection Act 1990 will be taken within a specified timescale then online Contaminated Land Legal Indemnity Insurance may still be achievable. CLS’ online Contaminated Land policy also covers No Searches. This is different from the standard “No Search insurance” since the contaminated land no search element would also cover remedial works.

The Environmental Protection Act 1990

The Environmental Protection Act 1990 legislates on contaminated land and is the statute used by local authorities to regulate contaminated land and carry out any enforcement action in accordance with government-issued statutory guidance.

The 1990 Act establishes liabilities for owners or occupiers so that where the party or parties that caused or knowingly permitted the contamination to occur cannot be found the current owner and/or occupier might be held liable for the costs of remediation work if the owner or occupier could reasonably have been expected to know the land was adversely affected by the presence of a pollutant. The 1990 Act imposes a duty on local authorities to identify the properties within their boundaries that are likely to meet the definition of ‘contaminated land’ and to undertake investigations and ensure remediation of land that is found to be contaminated if the land meets the remediation criteria.

What is a remediation notice?

A remediation notice is a formal written notice that requires an ‘appropriate person’ to carry out the remediation of contaminated land under the Environmental Protection Act 1990, Part 2A (also referred to as Pt IIA of the EPA1990).

If a property is designated as contaminated land the enforcing authority will issue a remediation notice. This notice sets out the steps to remediate the property. This could involve removing the contamination found in either the ground or in groundwater to stop any further migration. Technically, although unlikely, the remediation work could include the demolishment of property but most remediation work notices involve work to the land to remove contaminated material or to prevent further ingress. Monitoring the success of the remediation work may be required to accurately assess the success of the remediation work.

Remediation work normally needs to be undertaken by a specialist and it can therefore be expensive. Statistics indicate that the average cost of cleaning up contaminated land is £250,000 per acre. That means, given average plot sizes, that the average contaminated plot in the UK would cost £15,000 in remediation works.

Who is liable for Contaminated Land?

It would not be unreasonable to assume that the polluter or contaminator should be responsible for the contamination but the reality is that where contamination is discovered it is often historic in nature or the previous owner or developer is either no longer trading or does not have the assets to pursue for recovery of the remediation costs. If an Enforcement Agency cannot find a former owner or they refuse or cannot pay then the current owner could become liable for the contaminated land on the basis that otherwise the land would remain contaminated as the government does not have the resources to fund remediation work on privately owned contaminated land.

What is Contaminated Land Legal Indemnity Insurance?

Contaminated Land Legal Indemnity Insurance can also be referred to as failed environmental indemnity insurance. The policy protects the purchaser /Insured if an Environment Agency or the local authority gives notice of intent to serve a remediation notice under Part 2A of the Environmental Protection Act 1990 on the property as a result of it being designated as contaminated land.

What type of land or property can be covered by Contaminated Land Legal Indemnity Insurance?

Contaminated land Legal Indemnity Insurance can cover:

  • Residential property.
  • Commercial premises.
  • Development sites.
  • Land with planning potential.

Whatever the nature of the land or property it is worth checking if Contaminated Land Legal Indemnity Insurance can be provided and the extent of the cover. Depending on the nature of the land or property and the cover required a quote can be provided online or, in more complex situations, CLS may require more information to provide a bespoke quote.  As time is of the essence with most property transactions a bespoke quote doesn’t mean undue delay or even necessarily a significantly higher premium, but just means the CLS Contaminated Land Legal Indemnity Insurance is fit for purpose and both Insured and Insurer understand the risks and are happy with the cover.

Can all types of contamination be covered in a Contaminated Land Legal Indemnity Insurance Policy?

It is essential to understand what types of contamination are covered under a Contaminated Land Legal Indemnity Insurance policy to ensure that the policy meets the prospective owner’s needs. A CLS contaminated land policy does not cover:

  • Any contamination of the insured residential property that occurs either naturally or through the insured or third-party actions after the policy was taken out as the policy only covers historic contamination of residential property. If the policy covers commercial property, then depending on the nature of the commercial premises, environmental impairment liability (EIL) could cover new pollution events because of the insured use. EIL is reviewed on case-by-case basis and is limited to twelve months.
  • Vandalism or the dumping of contaminated material on the Insured’s land or property after the policy was taken out.
  • Harm or pollution attributable to radioactive substances.
  • Toxic mould, mycota, fungus, mould or mildew, Japanese Knotweed, asbestos and other contamination transmitted from the building into the ground at the insured property.
  • Radon.

What does CLS Contaminated Land Legal Indemnity Insurance cover?

It is crucial to understand what any Contaminated Land Legal Indemnity Insurance policy will cover so a purchaser can make an informed choice over whether the policy is the right one for them and if the risks of purchasing contaminated land are sufficiently off set by taking out specialist contaminated land Legal Indemnity Insurance. Contaminated land legal indemnity insurance could also be a requirement of the lender in there is a mortgage so it’s important to check what it covered under the policy.

The CLS Contaminated Land Legal Indemnity Insurance covers costs and expenses solely and directly resulting from:

  • Compliance by the Insured with any remediation notice or
  • Completion of remediation works agreed with the enforcing authority arising directly out of notice of intent to serve a remediation notice.
  • The liability of the Insured to reimburse the enforcing authority for remediation works carried out by the enforcing authority on the property.

The contaminated land policy covers:

  • The cost of reinstating the residential building(s) on the property following completion of remediation works which require the demolition of all or part of the building(s).
  • The adverse difference between the sale price of the property achieved by the Insured and the open market value of the property following a claim. The price differential is assessed and determined by an expert independently appointed surveyor.
  • The cost of any settlement made out of Court with the prior written consent of the Insurer.
  • Costs and expenses incurred by the Insured with the prior written consent of the Insurer in taking or defending any Court proceedings.
  • All other costs and expenses incurred with the prior written consent of the Insurer.

In essence, the rationale behind the Contaminated Land Legal Indemnity Insurance is to protect the Insured from loss in value of the property that occurs as a result of action under section 2A of The Environmental Protection Act 1990, such as the service of a remediation notice.

Contaminated Land Legal Indemnity Insurance and commercial premises add on cover

When the purchaser is buying commercial premises, they may require additional insurance cover that is not available to a purchaser of residential property. For commercial property purchasers, subject to a case-by-case review, the following add on cover options may be available:

  • Third-party property damage (TPPD) – this add on means the Insured is protected for property which is not in the Insured’s ownership and nor do they have a financial interest in it, in the event a third party starts legal proceedings against the Insured during the period of the policy for remediation of contamination of their property arising directly from contamination present at the Insured’s property prior to the inception date of the Legal Indemnity Insurance policy .
  • Third-party bodily injury (TPBI) – this add on provides cover in the event that a third party starts legal proceedings on the Insured during the period of the policy for compensation in respect of bodily injury arising directly from contamination present at the Insured’s property prior to the inception date of the insurance policy.
  • Environmental impairment liability.
  • Contractual transfer of liability.

The availability of these commercial premises additional cover options is dependent on the nature of the commercial property and require a bespoke quote.

Claims on Contaminated Land Legal Indemnity Insurance

As well as understanding the scope of Contaminated Land Legal Indemnity Insurance it is also important to know what could trigger a claim under the policy. The trigger for a contaminated land policy claim is the receipt of notice from an enforcing authority that they intend to serve a remediation notice. A remediation notice is only likely if the enforcing authority have knowledge of historical contamination through information and maps detailing former use of the land and an investigation is triggered that in turn leads to a notice of intention from the enforcing authority.

CLS here to help

CLS has over 15 years of experience in helping conveyancers with both residential and commercial property transactions. Our online portal is free to register and you’ll find our range of over 60 Legal Indemnity Insurance policies and products at your fingertips – including Variable Statements of Fact to let you customise to your client’s needs for the full range of legal indemnity policies including contaminated land legal indemnity insurance policies. Online indemnity insurance protection can be available within a matter of minutes. If a bespoke quote is required or you would simply rather speak to someone about policy options, we also have a team of specialists who can help you out with a bespoke offline policy.

Register for our free online portal

 

This article was submitted to be published by CLS Property Insight as part of their advertising agreement with Today’s Conveyancer. The views expressed in this article are those of the submitter and not those of Today’s Conveyancer.

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