The lie of the land

While the government is encouraging new building on brownfield sites, there are risks involved for the developer. Contamination issues can hold up construction work on a site for months, sometimes years, exposing developers to significant time and financial penalties.

Recent Government targets demand that 60 per cent of all new houses are built on brownfield sites, which are sites that have been previously developed, usually for industrial purposes.

While there are thousands of brownfield sites available to developers in the UK, many of these sites have been contaminated in some way, presenting potential development liabilities due to the risk of residual pollution and the subsequent remediation costs. It is difficult to estimate accurately, but the Environment Agency believes that there are between 5,000 and 20,000 contaminated sites “that may have an impact on human health or the wider environment”.

Many brownfield sites were formerly occupied by facilities that were built and operated in an era when industry was far less concerned about the impact of its operations on the environment. Some contamination is in the form of derelict buildings and architectural debris, but at other sites it may be characterised by chemical residues or heavy metals.

Since a considerable number of the sites that are classified as brownfield are in the heart of old industrial areas of inner cities, there is a strong interest in rehabilitating them for new uses, but developers must be aware of the liability issues involved. Once a site is placed on the contaminated land list, it will never be removed, with implications for land and property values.

Under Part IIA of the Environment Protection Act (1990), which came into force in England in April 2000 (Wales 2001), local authorities have to identify all contaminated land in their areas and these inspections will continue until 2006. Part IIA also requires local authorities to inspect their areas proactively to ensure that appropriate remediation is undertaken, however long it may take.

With an appropriate risk management programme in place, however, the risks and costs arising from brownfield site development can be minimised. For example, the early identification and evaluation of contamination, by virtue of an environmental site survey, enables appropriate corrective action to be implemented. This in turn significantly reduces the likelihood and financial impact of future environmental losses and hence the cost of liability insurance.

Insurance is an essential element of the well-planned and well-executed brownfield project. It allows environmental consultants, contractors, financial institutions and other parties to participate comfortably in projects, which would otherwise be disqualified from consideration due to risk factors. A considered approach to risks at hand, facilitated by a full environmental audit, enables Lycetts to assess their clients’ cover requirements and to design bespoke long-term insurance solutions to meet the same.

In many cases, protection can be provided for the majority of risks through the purchase of Environmental Impairment insurance, which protects against environmental damage claims, cost overruns on remediation activities and for the risks associated with releases caused by clean-up activities at the site.

In addition, there are a number of more specialist insurance policies available for potential developers but expert advice is always recommended so that the correct level of cover is provided. Insurance can play an important role in promoting brownfield development by limiting some of the risks that are faced by both developers and lenders.