Land contamination—issues in banking and finance transactions
Produced in partnership with ELM Law
Land contamination—issues in banking and finance transactions

The following Environment practice note produced in partnership with ELM Law provides comprehensive and up to date legal information covering:

  • Land contamination—issues in banking and finance transactions
  • Land contamination liabilities
  • When is a lender at risk?
  • Due diligence
  • Best practice and guidance
  • Options for environmental investigations
  • Reliance on environmental reports
  • Facility agreement
  • Conditions precedent
  • Other environmental clauses
  • More...

Land contamination liabilities

The main types of liabilities associated with land contamination and water pollution are summarised in Table A.

Table A—Summary of main land contamination liabilities

Regulatory actionThird-party liabilitiesContractual liabilitiesOther liabilities
Planning obligations and conditions in respect of developmentPrivate nuisance claimsLease disputesClean up, investigation and monitoring costs. Landfill tax
Contaminated land regime, Part IIA of the Environmental Protection Act 1990 (EPA 1990)Public nuisance claimsAgreement for lease disputesLoss of property value
Environmental damage regulations, EDR (England), SI 2015/810; EDR (Wales), SI 2009/995Negligent professional adviceLicence to enter indemnity claimsDelay or aborted transactions
Anti-pollution works notices, sections 161–161D of the Water Resources Act 1991 (WRA 1991)Personal injury claimsRemediation agreementsAccounting provisions
Environmental permit obligations, EPR 2016, SI 2016/1154MisrepresentationInsurance policy disputesNegative publicity

For further information, see Practice Notes: Land contamination—potential liabilities and Water pollution—potential liabilities.

When is a lender at risk?

Contaminated land liabilities can impact a lender in the following ways:

  1. Reduce the value of the lender’s security

    Land contamination and water pollution can reduce the market value of the land. This can result from concerns over:

    1. the cost of investigations, remediation and monitoring

    2. uncertainties regarding unknown historic contamination

    3. off-site migration

    4. potential statutory action or third party claims

    5. the need for environmental insurance

  2. Reduce the credit-worthiness of the borrower

    Contaminated land liabilities can also impact the borrower’s ability to repay the mortgage or loan. This can result from:

    1. costs

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