In brief – Sellers of contaminated land must disclose; buyers must investigate and negotiate
It is increasingly common these days for purchasers buying land for development to be faced with the problem of contamination. If contamination is present or suspected, it is prudent for a vendor to disclose as much material as possible in the contract about the contamination to avoid the purchaser rescinding the contract or claiming substantial damages, including loss while remediation is undertaken.
Purchasers should also make their own enquiries and conduct due diligence for actual or suspected contamination. This problem is now encountered not only with commercial and industrial land, but also with land intended to be used for residential development. For example, this can happen because the land was previously used for farming or as a landfill site.
What the vendor has to disclose
If you own and decide to sell land where there may be some known contamination, you should specifically disclose this in the contract, including any remediation work that has been carried out together with notices received from any authorities.
The purchaser is then fully aware of the condition of the land, what has been done with it in the past and what is required to be done in the future.
Vendors sometimes encounter trouble when there is some evidence of contamination which is not disclosed in the contract. If the purchaser learns about the contamination after completion, the purchaser may have a claim against you as the vendor.
If a purchaser makes an enquiry about the presence of contamination and you do not make full disclosure, then the purchaser can sue you successfully for misleading or deceptive conduct.
What the vendor has to decide
It can be quite costly for a vendor to clean up the land pursuant to a site remediation plan. In some instances, remediation work may require a development consent from Council which may take time and incur significant costs.
If you are a vendor, you need to make a decision as to the best course of action when you are deciding whether or not to sell.
Vendors may have to agree to lower the price
You may have a situation where the purchaser wishes to purchase the land knowing all about the contamination and will carry out the necessary remediation works after completion. On this basis, it is likely that you will have to agree to lower the purchase price or agree to other conditions.
What the purchaser should investigate
If you are considering buying land and there is some evidence that it may have been exposed to some contamination, prior to making an offer you should make enquiries with Council or any other authorities including the Environmental Protection Authority (EPA) and do any necessary searches.
If you are unsure about the contamination of the land, you should ask the vendor to include specific warranties in the contract regarding the existence or extent of contamination.
You should also ask for an indemnification clause to be included in the contract, supported by guarantees, where the vendor indemnifies you for any loss or damage if contamination is found after completion.
Get an environmental site audit
When a deal has been negotiated, the parties are usually keen to have an immediate exchange of the contracts. Sometimes there is not enough time to carry out all of the necessary enquiries.
If you are a purchaser, you should request the insertion of a specific clause allowing you to obtain an environmental site audit at your own cost.
If the site audit shows that the land or improvements are contaminated by chemicals or dangerous or hazardous substances which would need to be remediated to render the land environmentally acceptable for either commercial or residential use, you should be entitled to rescind the contract or to have the price reduced in accordance with some pre-agreed formula.
Both vendors and purchasers need a feasible remediation plan
Contamination continues to be an alarming issue for both vendors and purchasers of land. The key is for each party to work out a feasible plan if it involves remediation.
The vendor usually wants to sell the land and a purchaser buying contaminated land is always faced with some level of risk which must be balanced up against the use and development of that land in the future.
This is commentary published by Colin Biggers & Paisley for general information purposes only. This should not be relied on as specific advice. You should seek your own legal and other advice for any question, or for any specific situation or proposal, before making any final decision. The content also is subject to change. A person listed may not be admitted as a lawyer in all States and Territories. © Colin Biggers & Paisley, Australia 2020.