Our team: Jenny Sargeant
Brownfield redevelopment is an excellent opportunity to unlock value by re-purposing land. It is also an opportunity to promote sustainable urbanisation in the UK (which is important given the predicted trend of increased urbanisation over future decades). It can bring derelict sites back into use, create new communities, enhance neighbourhoods and also enable property use to evolve with demographic and social changes. However, a major deterrent for investors, financiers, and uninitiated developers is perceived risk from contamination and hazardous substances.
Contamination has been a particular sensitivity for financiers since the contaminated land regime was introduced in the ’90s. This extended the liability for contamination from polluters to existing property owners where the previous polluter could not be traced. Brownfield redevelopment is also likely to involve demolishing buildings which, because of their age, are more likely to contain hazardous waste necessitating the involvement of specialist waste removal teams during the build.
When we asked our clients to rate various legal risks in terms of their seriousness in our Fladgate Brownfield survey, lender clients mostly still rated contamination as the most serious risk. However, our developer clients (all of whom confirmed they have experience developing brownfield sites) did not rate contamination as one of their top concerns at all. This difference in perception of risk is really interesting. For a specialist brownfield developer remediation is just part and parcel of their planned development programme. They will have developed strategies to assess the risk early on so as far as possible they can provide for expected remediation costs in their development budgets.
The worst risk on site is a surprise issue coming to light during the development works which brings works to a halt. Proper pre-construction investigation and expertise helps to minimise these risks. However, what is really key is developer and contractor experience in addressing contamination.
What do our developer clients do to address remediation risk?
Desktop searches for brownfield (produced using computer data only) will invariably state further investigative action is required. Phase I reports analyse further using soil samples from test areas across a site and give a more helpful indication of risk areas. However the samples only give data from specific areas and usually a full Phase II report is required to provide a full assessment. This type of reporting often can only be carried out once demolition works have been undertaken as full access is required for a full assessment.
Remediation is very much a specialist area and engaging specialists early on in the process is important. It is also an important part of managing the pre-construction process and reassuring the local authority that remediation will be dealt with appropriately. For smaller developers, a third party consultant can be helpful as a means of reassuring investors and financiers that risks have been properly assessed.
Reports and reliance letters
Funders and investors will want to see upfront diligence and specialist reports. They will also want reliance on key reports (i.e. for the reports to be readdressed to them so that they can rely on their accuracy from a legal perspective). This provides reassurance particularly as specialists will have professional indemnity insurance.
Prior to demolition developers may use test pits to obtain samples from across the site. This can be helpful to get a general picture of contamination and sub-surface conditions but is a limited snap shot. There is always the possibility that test pits miss contamination hot spots. Test pits also require surface accessibility so are not usually an option where demolition has not taken place.
It can be helpful to have pre-construction works quoted and carried out separately to demolish existing buildings and expose the surface so a proper contamination assessment can be carried out before construction works commence. Alternatively, for larger developments, they can be carried out in phases so ground conditions in initial phases can be fully explored and a remediation plan developed that can be rolled out across later phases. This helps to reduce risk perception (and therefore construction cost) for developing later phases.
Where a site is part of a wider area of development clients often speak to neighbouring developers to find out how others have addressed remediation. This helps to formulate a site-wide approach to remediation.
Because funders and investors have an increased perception of contamination risk, hands-on risk perception management by developers is very important. A developer who communicates early on with these parties and gets them up to speed on the specifics of a site (e.g by providing a detailed diligence package/sub-surface analysis) will demonstrate an understanding of risk levels and having the expertise/experience to address these. Most financiers will state a strong preference for working with experienced developers and it is important to demonstrate that experience and specialist knowledge to them.
Ideally, how would developers and contractors assess remediation risk?
Ideally, developers and contractors would collaborate to investigate remediation risk. This would enable both to properly cost the risk and for the contractor to tailor its works programme around effective remediation works. Developing this relationship would help give developers confidence that if issues did arise that they would be appropriately dealt with. However, in the current market contractors are very reluctant to take on contamination risk.
Whilst contamination certainly can be an onerous liability, for those experienced in developing brownfield land, remediation is just par for the course. Proper assessment of risk and active management of works and communications with interested parties can ensure that remediation does not deter interested parties or cause delays on site.