Bell & Scott Property Update, June 2006 Welcome to the June 2006 issue of Bell & Scott Property Update. In this month's issue we comment on the second case to come before the High Court under the contaminated land regime and provide an update on the proposed Planning Gain Supplement following a response to the consultation from the Scottish Executive. Recent Decisions Finding the contaminator   Privatised body liable for contamination of state-owned predecessor In the October 2004 and June 2005 Editions of Property Update we commented on Circular Facilities v Sevenoaks District Council which was the first appeal brought under the contaminated land regime to be heard by the High Court. Although that case was sent for retrial the matter has since been settled out of court. The second such case to reach the High Court has recently been decided. It involved land on which 11 residential properties had been constructed on the site of a former gasworks. A coal tar pit was discovered in the back garden of one of the properties and as there was a major aquifer under the site used for water abstraction, the contamination was likely to cause water pollution. It was not known when the coal tar had been produced but it was agreed that it was likely to have been created by one of National Grid Gas plc’s predecessor companies. The Environment Agency identified both National Grid and a property developer as being “knowing permitters” of the contamination in terms of the Environmental Protection Act 1990 (the Act). The property developer had knowledge that the site had been used as a gasworks, had obtained planning permission for residential development and had developed site. The Environment Agency therefore deemed it improbable that it would have been unaware of the contamination and considered that it had had adequate opportunity to remediate the site. However, as the company had been dissolved it could not be “found” in terms of the Act. This left National Grid as the only “appropriate person” in terms of the Act and consequently liable for a reasonable proportion of the costs of the remedial work involved in cleaning up the site. National Grid sought judicial review of the Environment Agency’s decision on the basis that National Grid itself had not caused or knowingly permitted the contamination in question and so could not be an "appropriate person" in terms of the Act. The Court took the view that the relevant section of the Act made it clear that primary responsibility for the remediation of contaminated land should rest with the original polluter (“the polluter must pay” principle), in preference to innocent owners or occupiers, unless the original polluter could not be found. The Court distinguished normal cases where the company responsible is dissolved and its assets distributed to other persons from the situation in National Grid’s case where assets, rights and liabilities are transferred under a clear chain of statutory provisions. In such cases the original polluter can be “found”, in the form of its statutory successor due to the company reorganisation and privatisation. Leave has been granted to National Grid to appeal the decision to the House of Lords. Stephanie Mackenzie, an Associate in our Acquisition and Development team specialising in Environmental Law comments: It is not surprising that National Grid has sought leave to appeal a decision to the House of Lords: the implications for it and other privatised industries is enormous, given the number of comparable sites throughout the UK and the potentially high levels of historic contamination. Many would argue that it is only fair that privatised companies take on the liabilities of state-owned entities at the same time as taking on the assets, but it will be interesting to see how the House of Lords deals with what will no doubt be a robust argument put forward by National Grid. Considering the case from a developer’s perspective, the developer only escaped liability because it had been dissolved in the meantime. Had the company still been in existence, liability might have been apportioned differently. If the developer had been held to have “knowingly permitted” the contamination to continue (and the Environment Agency confirmed that it considered that it had) statutory exclusion tests would have been applied in a fixed order. If neither National Grid nor the developer had been excluded by the time the last test was reached, notwithstanding the fact that it was the “causer”, National Grid would probably have been excluded at that time, leaving the developer with full responsibility for the remediation. The final test excludes other parties from the liability group where one party either introduced the “receptor” of the pollution (in this case the householders) or introduced a “pathway” ie a route between the pollution itself and the receptor, in this case the houses on the development. The developer can therefore consider itself lucky that it was no longer in existence! Accordingly, whilst confirmation that companies like National Grid will retain responsibility in respect of historic contamination is undoubtedly good news for developers, it does not mean that they can be sure of avoiding liability when they are aware (or should be aware) of historic contamination and fail to do anything about it. Addressing the issue at the time when the acquisition and development of a site is being considered is the answer, building adequate remediation into the financial model and adequate contractual protection into the documentation. Case referred to: R (on the application of National Grid Gas plc) v Environment Agency The full text of the decision is available from the British and Irish Legal Information Institute here. News

An Executive response

PGS Update

James Aitken, Property Tax Associate provides an update on the proposed Planning-gain supplement.

In the December 2005 edition of Property Update we included an article on the UK Government's consultation paper on a Planning-gain supplement (PGS). The proposed PGS is a tax on the increase in land value attributable to the granting of planning permission. The revenue raised would help fund infrastructure improvements throughout the UK. The PGS consultation ended at the end of February 2006. In the December article we urged the Scottish Executive to take an active role with regard to any introduction of a PGS in Scotland. The Executive gave the first signals that it may be going to do so when it published a response to the Consultation Paper at the end of last month.

The debate continues
The Chancellor in his Budget speech confirmed that the PGS would be introduced in 2008. That was in fact his only comment as far as the PGS was concerned. Notwithstanding the Chancellor's lack of comment, the PGS debate has continued. What has been most encouraging has been some of the comments made by a number of UK Government Ministers when they have been questioned on how the PGS will be structured. For example it has been suggested that there may be a lower PGS rate for "green" developments, that the Treasury may forward fund critical infrastructure improvements and that local authorities might be able to borrow against potential PGS revenues once the system is up and running.

What is the position of the Scottish Executive?
Until the Scottish Executive published its response I was not even sure whether it had formed an opinion on PGS or, if so, whether it wished to share that opinion. Prior to reading the Executive's response I had suspected that the Executive was likely to oppose the introduction of the PGS, at least in its present format, in Scotland. The fact that the PGS is as much about housing and planning, which are devolved matters, as tax, which is primarily a UK matter, was the primary reason.

That said, the response from the Executive surprised me. If you ignore the fact that the response is written in polite Government speak it can at best be said that the Executive has a number of concerns. On the other hand it is not difficult to form the view from the Executive’s response that it is in fact wholly opposed to the introduction of the PGS into Scotland.

The Executive has three main areas of concern:

- "That a misconceived final design of the PGS might constrain rather than support development and regeneration."

- “The tensions that arise from divergent planning systems and other differences in approach in devolved policies."

- “The need for transparency and equity in the distribution of the revenue."

With regard to possible constraint of development, the Executive highlights the fact that the Barker Report on housing supply which was the origin of the current proposals was based on the English housing market. Recent Scottish reviews have shown that Scotland’s housing and wider development markets differ significantly from England in several respects meaning that the market is likely to react differently with regard to the introduction of a development tax. The Executive expresses concern that the effects of such a tax are likely to be particularly significant with regard to smaller scale developments which form a greater proportion of activity in Scotland than England. It also takes the view that potential disincentives to growth are most likely to apply outwith areas of high economic growth which is more likely to adversely affect Scotland with its large remote rural areas and its areas of high regeneration needs.

The difference between the planning systems is also a concern to the Executive. It notes that the planning systems north and south of the border are "devolved, separate and increasingly divergent” and says that officials have already identified areas where technical differences in the two systems may affect the workability of the supplement. It also takes the view that the disconnection of infrastructure provision from individual planning applications implied by the PGS appears contrary to the principle of considering and mitigating the effects of planning applications through local engagement on which the Planning etc (Scotland) Bill is based.

On the subject of recycling of revenues, the Executive requests more information and warns that the uncertainty and confusion which currently exists could be “most damaging” if allowed to continue.

Despite its concerns, the Executive does not dismiss a PGS out of hand and indeed indicates that it is keen to work with its counterparts in the UK Government to gain a greater understanding of the implications of the PGS. However, whether it will support the introduction of the tax when that level of understanding has been achieved remains to be seen.

Conclusion
Whether Scotland, or indeed the rest of the UK, has to deal with the PGS within a couple of years is dependant on a huge number of variables. These include whether the comments made by UK Government Ministers are indicative of a Government willing to listen and act upon a number of the major concerns that have been raised on the PGS, how strongly the Executive would resist the introduction of the PGS into Scotland, the next Scottish Parliament election which is less than a year away and possibly even the next UK General Election. Interesting times indeed.  

Contaminated Land Guidance

Environmental Protection Act 1990: Part IIA Contaminated Land - Statutory Guidance: Edition 2

In the March 2005 edition of Property Update we commented on the consultation on proposed changes to Part IIA of the Environmental Protection Act. Those changes were contained in the Contaminated Land (Scotland) Regulations 2005 which came into force in April 2006.

The stated purpose of the changes is to prevent disproportionate regulation being applied to contaminated land causing only trivial amounts of pollution to the water environment and to align the contaminated land regime and the relevant provisions of the Water Environments and Water Services Act 2003.

The Scottish Executive has now published revised guidance on Part IIA of the Environmental Protection Act which takes account of those changes. The guidance replaces in its entirety the previous guidance issued in July 2000. It covers the definition, identification and remediation of contaminated land together with recovery of costs for remediation and also exclusion from, and apportionment of liability for, remediation.

Included with the guidance is a summary of Scottish Executive policy in the area, a guide to the Contaminated Land (Scotland) Regulations 2000 and a note on the Contaminated Land (Scotland) Regulations 2005.

The paper is available from the Scottish Executive at: http://www.scotland.gov.uk/Resource/Doc/127825/0030600.pdf