Factors to Consider in relation to Brownfield Sites

The Scottish Executive consultation on the proposed amendments to Part IIA
of the Environmental Protection Act 1990 - contaminated land, closes today.
The principal purpose of the proposed changes to the Act is to stop a disproportionate
amount of environmental regulation being applied to land that causes only insignificant
amounts of pollution to the water environment, and where there is no evidence
of substantial harm to human health or the wider environment.

5 May 2005

The Scottish Executive consultation on the proposed amendments to Part IIA
of the Environmental Protection Act 1990 - contaminated land, closes today.
The principal purpose of the proposed changes to the Act is to stop a disproportionate
amount of environmental regulation being applied to land that causes only insignificant
amounts of pollution to the water environment, and where there is no evidence
of substantial harm to human health or the wider environment.

The issue of contamination of land is one of the first things that spring to mind when considering brownfield sites. Across Scotland there are hundreds of sites, which have been contaminated by the legacy of previous industrial uses and may present risks to human health and the environment.

However, it is a common misconception that the term "brownfield" means only land situated in an urban area and which is contaminated in some way. A more accurate definition would simply be "any land that has been previously developed".

The emphasis of government policy and planning guidelines in recent years has focused increasingly on the development of brownfield land, rather than greenfield sites. While generally lower land values for brownfield sites in comparison to greenfield land may present an opportunity for developers in terms of high potential profits, the nature of brownfield sites means that there are many more obstacles in a developer's way in realising these profits and there are a number of specific issues and concerns which developers must take account of when considering whether developing on a brownfield site is in fact viable.

This overview looks at the principal issues to be aware of when dealing with the development of brownfield sites, and while the regulatory framework concerning contaminated land and the responsibility for cleaning it up are often very relevant, by their very nature, all brownfield sites are different and the precise obstacles that need to be overcome by developers will in each instance depend on a variety of factors, such as the use to which the land has been put in the past and the nature of the proposed development itself. The regulatory structure surrounding the redevelopment of brownfield sites is extremely complex and specialist advice should be sought where issues of contamination apply.

What is Brownfield Land?

The term encompasses any land that has been previously developed. Not all brownfield sites are contaminated and by no means all brownfield sites are situated in urban areas. Brownfield sites may include vacant plots and redundant buildings, as well as the type of land more traditionally associated with the term "brownfield", namely derelict or contaminated land or land with difficult ground conditions (such as underground tanks and basements or unconsolidated soils). Returning such land and any redundant buildings on it to economic use is more complex than developing on former agricultural, or greenfield sites, although some of the issues are relevant in the development of all types of land.

The development of brownfield land is being actively encouraged from a town planning perspective in order to help reduce the loss of greenfield sites and to improve our towns and cities. It is a current government policy that 60% of all new housing should be built on brownfield sites by 2008. Brownfield land is developed not only for housing but also for a wide range of other industrial and commercial purposes. Some brownfield sites may not be suitable for housing at all, regardless of whether they may themselves be adequately remediated, such as where the industrial use of neighbouring properties is unsuitable for residential or even some commercial purposes.

Three Principal Issues to Consider

The development of Brownfield land raises a number of specific problems which developers need to consider and overcome before producing a successful development. There are three principal issues, which arise roughly chronologically in the development process:

  • Site Investigations
  • Site Remediation and Abnormal Development Costs
  • Reports, Warranties and Insurance

Site Investigations

The first thing the developer needs to do is to gather sufficient information about the site and the potential costs of developing it to make an informed decision about the risks involved. It is essential to undertake a full
investigation of the history of the land
and the possible impact of former activities on the site and the proposed development as well as an investigation of the actual current ground conditions. By completing a thorough investigation, developers will be able to identify actual and potential environmental risks and their associated costs at an early stage, which in turn will allow the developer to calculate whether or not the deal is actually commercially viable.

In general, the extent of the investigations required in each case will depend on the nature of the individual site, but it is likely in almost all cases that a developer will want to employ a suitable independent environmental consultant to carry out a full investigation of the site and to report appropriately to the developer and its funder.

Site investigations will involve a study of the planning and industrial history of the site. Previous uses of the site for industrial purposes, mining and the like, may point to potential contamination of the ground. In Scotland, contamination is most frequently found where the site has been used for some past industrial activity such as oil refineries, gas works, chemical manufacturing, or petrol stations, but it is also quite possible for contamination to occur in land which has been used for agricultural activities.

The uses to which neighbouring land has been or is currently put should also be considered, due to the possibility that contamination may have seeped into the site from surrounding areas.

The next stage may be to carry out on-site intrusive investigations, which may involve digging bore holes or taking soil samples, to help to determine the level of remediation required. A detailed investigation of the nature of the site will identify the actual problems on the site, which may include contamination hazards or geo-technical issues. It will help to identify the effect that those on-site problems could have on the development proposals, the value of the land and the finished development and therefore on the feasibility of the scheme as a whole, and it will ascertain the costs and liabilities which are likely to be incurred by the developer, as well as the financial and legal safeguards that the developer might want to put in place to adequately guard against the risks.

The outcome of such site investigations may highlight specific provisions that need to be incorporated into the purchase contract, as well as being relevant during initial negotiations on land value and price. Just as often however, there may not have been the time or opportunity to carry out full intrusive investigations before the contract stage is reached. The developer may be unwilling to incur the expense of carrying out full site investigations without contractual certainty and equally, the landowner may be reluctant to allow intrusive investigations on his land until a contract is in place.

The parties may enter into a conditional contract allowing the developer a certain amount of time to carry out full site investigations and obtain reports on ground conditions, and providing for the contract to be cancelled if the results of those investigations and reports are unsatisfactory. Such conditions should allow appropriate access to the site for all necessary investigations, with a sufficient period of time for all the investigations to be carried out, reports produced, and their terms considered and costed, but with a deadline by which this must all be done.

The developer needs the option to be able to walk away from the contract if ultimately the investigations reveal that the site is simply not suitable for its proposed development or that the costs of rendering it suitable will be too high. Where a developer has carried out full site investigations and then does not proceed with the purchase of the site, the landowner may ask for the developer's site investigation reports to be readdressed or assigned to him to enable him to rely on the reports in his own development of the site or in a sale to a third party. Where the developer is prepared to do this, it would expect the landowner to reimburse the developer's costs of obtaining the reports.

Site Remediation and Abnormal Development Costs

Once initial investigations have been completed, and the developer has decided to continue with the next stage of the development, it can then properly assess the most appropriate methods for any site remediation required and the costs involved. The investigations undertaken at stage 1 should be as detailed as possible, with appropriate provision in the contract to that effect, in order that the developer will have all of the information which it requires to calculate the costs as early in the development as possible.

The costs involved in remediating a brownfield site will necessarily impact on the land value. Valuing the land and agreeing on a purchase price can often be one of the most difficult aspects for a developer. It is easy for arguments to arise over the level of the costs which a developer will have to incur in remediating a site, and the types of expenses which a developer can incur in these circumstances is very varied.

As well as all of the costs involved in the actual remediation and decontamination of a site which may include demolition, removal of contaminated materials and associated landfill taxes, and the costs of importing clean soil, the nature of brownfield land is such that it is usually (though not always) located in urban areas, and as part of the planning consent a developer, particularly a housing developer, may be required to contribute community benefits over and above the actual redevelopment of the site, such as financial contributions to local education facilities, affordable housing, public open space and infrastructure. The local planning authority may therefore require the developer to pay significant additional costs in terms of planning gain prior to the release of the planning permission.

The current problems of the capacity of Scotland's water system are well documented at the moment and developers may soon be asked to make specific payments to Scottish Water to cover the costs of any upgrades required to the public water and sewerage system due to the existence of the development.

In contracts for the development of brownfield sites, it will be usual for the developer to seek to be able to deduct from the headline purchase price all costs that the developer will incur in the redevelopment which are "unusual" - that is, costs which are unlikely (or less likely) to arise in the development of greenfield land, which are classed as "abnormal development costs" and will cover all matters which a developer will need to pay for before purifying all of the conditions, in particular, those relating to ground conditions and planning. The precise terms of the agreement will, of course, be the subject of negotiation between the parties to the contract in individual circumstances.

Reports, Warranties and Insurance

Once the investigations are complete, the site has been purchased and the remediation is underway, the developer of a brownfield site will want to ensure that it, its funder and any purchasers from the developer after remediation of the site, are protected against any potential hidden costs and liabilities in the future.

The developer should ensure that the environmental consultant employed to carry out the initial site investigations is reputable, suitably qualified and experienced, and with adequate professional indemnity insurance in place, as ultimately, the developer will be relying on the report which the environmental consultant produces when it proceeds with the development.

A developer should also seek collateral warranties from any third parties it employs to carry out the demolition and remediation works, and the terms of the environmental consultant's and contractors' appointments must be sufficient to cover all of the developer's requirements, and ideally, reports and warranties should be able to be readdressed or assigned at least to the developer's funders and also to any purchasers of the site from the developer, to allow those third parties the comfort of a direct link with the consultant or contractors.

The landowner himself may have carried out site investigations and obtained reports prior to marketing the site. He may even have already carried out the remediation or be planning to do so after selling the land. The developer will want to be able to rely on those investigations and reports and the quality of the remediation works as well, even though it did not commission them itself, and to make provision to that effect in the terms of the purchase contract, so that readdressed or assigned reports and/or collateral warranties are obtained by the landowner for the developer and its funders to rely on. All of these types of protections should be seen as matters that will encourage investment in brownfield sites by allowing parties to participate in them while being protected against potential financial and legal risk.

For further assistance in connection with the acquisition of brownfield sites, and other development acquisition and disposal advice please contact [url=mailto:anneli.spence@shepwedd.co.uk]Anneli
Spence[/url] or Andy Hall.