Brownfield Land In The UK: Lenders' Liability

Introduction

In this fourth in our series of briefings on topics relevant to those involved in brownfield land, we look at the issue of lenders' liability in respect of risks arising from brownfield sites under environmental law in England and Wales.

Whilst it is, in general terms, rare for liability to fall on lenders, there is potential for lenders to become directly liable in respect of risks associated with brownfield land and more scope for them to be indirectly affected. Having an awareness of the potential risks and taking appropriate action from the outset allows lenders to plan for and avoid/reduce the extent of any potential impact/liability. It is also useful for borrowers to be appreciative of the risks that inform the approach taken by their lenders.

Overview of risks facing lenders

In general, the issues that lenders face can be broadly categorised as follows:

The borrower's ability to repay the loan if it faces onerous environmental liabilities The adverse impact on the value of the property (as security for the loan) as a result of its environmental condition Liability falling on the lender in respect of any "responsibility" for the condition of the property attributed to it by the law or under contract. Direct liability

Whilst the risks are usually low, there are a number of ways that lenders who fund the acquisition of, or operations at, brownfield sites may face direct liability, including through clean-up orders, damages claims and/or reputational damage. Lenders may be liable for environmental matters to the extent that they fall within one or more of the categories of person upon whom liability is imposed by statute or common law in the relevant circumstances.

Generally speaking, liability will not arise merely by virtue of lending but instead arises only through exerting significant control over the operations which cause environmental problems or through ownership or occupation of the property at or from which they emanate. As such, lenders have to get the balance right between obtaining adequate information and maintaining or enforcing contractual protection of their interests and avoiding an extent of involvement which could result in unwanted liability or, to the extent this is unavoidable (for example when exercising step-in rights), limiting that liability.

Contaminated land regime

The principal pollution liability legislation in the UK is the contaminated land regime enshrined in Part IIA of the Environmental Protection Act 1990.

Under the contaminated land...