Whether you are taking a lease or buying the freehold of a commercial property, there are several investigations you might want to carry out before you commit to buying a commercial property. Perhaps the most obvious is a physical inspection of the property and possibly a professional survey to check that you are happy with the state and condition it is in.
Safety, health and environmental issues follow on from that; and how deep you want to delve will depend on the nature and value of the property, whether you are leasing or buying, what the property has been used for in the past and what you intend to use it for.
Safety, health and environmental issues encompass liability for statutory compliance in respect of contaminated land, asbestos, fire safety and fire risk assessments, ensuring that plant and machinery are compliant, plus other matters such as the risks of legionella and Japanese knotweed.
- Who is liable for remediation of contaminated land?
- What investigations might you want to consider undertaking before you acquire a property?
- What are the specific concerns when taking a lease?
Who is liable for remediation of contaminated land?
The key piece of environmental legislation regarding the contaminated land regime is the Environmental Protection Act 1990 (EPA) and the contaminated land regime under Part 2A of the EPA. This legislation covers historic, existing, and future contamination and applies to all land whether residential, commercial, industrial or agricultural. It also includes surface, ground and coastal waters and land contaminated by radioactivity.
Liability to remediate land may arise as a result of substances in the land which pose a risk of harm to persons or designated ecological areas, controlled waters, or crops, animals or buildings. Primary responsibility falls on those who caused or knowingly permitted the land to be contaminated (known as a 'class A person').
However, if the class A person cannot be found, the current owner or occupier ('class B person') may be served with a remediation notice requiring them to clean up the land. In some circumstances, if you are aware that the land you are buying is contaminated, and you fail to remediate the land within a reasonable time, you may be determined as a class A person.
Remediation can be time consuming and costly.
What investigations might you want to consider undertaking before you acquire a property?
The following investigations are standard when taking a lease or buying land. The list below might be expanded or reduced depending on the value and complexity of the transaction. If you are borrowing money to fund your purchase, your mortgage lender will require some or all these investigations. The results of some of these searches and investigations may take several weeks to come back, so, if possible, factor this into your transaction timeline:
- Enquiries of the local authority, known as a Local Authority search. This search will reveal:
- The planning permissions and applications affecting the property. This can be a helpful indication of whether the land was used for a potentially contaminative use in the past.
- Contaminated land notices affecting the property.
- Entries on a register which lists remediation notices affecting the property and related matters.
- Any consultation with the owner/occupier of the property before the service of a remediation notice.
- Hazardous substance consents (which indicate that hazardous substances may have been stored on the property and therefore flag a risk of contamination).
- A drainage and water search, which will provide details of the water and drainage services at the property.
- An environmental search. There are different types of environmental searches at different price points and the one you chose will depend on the nature and value of the property you are acquiring.
- The raising of preliminary enquiries and Commercial Property Standard Enquiries ('CPSEs') with the seller or landlord. The CPSEs are a standard set of enquiries that are raised on behalf of a prospective buyer or tenant of commercial property. A section of the CPSE relate to environmental matters and request information on or copies of any environmental reports, licences and permits that the seller or landlord holds, and information on the physical condition and current and historic uses of the property.
- Specific enquiries can be raised as necessary, depending on the results of the property searches, the nature of the property and the past use. For example, is there a river or stream nearby? Is the property near to a manufacturing plant?
What are the specific concerns when taking a lease?
As a tenant, it is likely that your lease will require you to:
- repair and maintain the property; and
- comply with all statutory obligations in relation to the property.
These obligations can lead to unexpected risk and expenditure for you or your business. Your lease may also contain service charge provisions, if the landlord is to carry out certain services on behalf of the tenants in the building (for example, maintaining and repairing the structure of the building and the common parts). A service charge will require you to contribute towards the costs incurred by the landlord and these may include, either directly or indirectly, the cost of remediating contamination or compliance with other statutory obligations.
Your lease may also contain specific provisions allocating liability in relation to contaminated land and statutory obligations.
Under the Control of Asbestos Regulations 2012 ('CAR') a tenant is likely to be a 'dutyholder', which comes with a set of responsibilities regarding the identification and management of asbestos (see below).
Do you need to worry about asbestos?
Whether you are buying or leasing commercial property, it is wise to have an understanding of whether asbestos is contained within the property and if so, what risk this poses to your business.
What investigations are recommended will depend on the age of the property. Any premises whose construction was completed before 2000 should always be presumed to contain asbestos unless there is strong evidence to suggest they do not. Any premises constructed after 2000 can be presumed to be asbestos-free – but check whether the property you are acquiring has been built on existing basements or are linked to adjoining structures that are older.
Regulation 4 of the CAR imposes an obligation on the 'dutyholder' to:
- Determine whether asbestos is present in a building or is likely to be present.
- Manage any asbestos that is or is likely to be present.
Who is the 'dutyholder'?
- Every person who has, by virtue of a contract or tenancy, an obligation of any extent in relation to the maintenance or repair of non-domestic premises or any means of access to those premises; or
- where there is no such contract or tenancy, every person who has, to any extent, control of that part of those non-domestic premises or any means of access to those premises.
In short, this means that whether you are the owner or the tenant of commercial property, it is likely that you will be a dutyholder. If you are also an employer, note that additional regulations also apply. They are intended to protect employees from the risks of exposure to asbestos arising from work being carried out by an employer that may disturb the asbestos.
Where there is more than one dutyholder in relation to property
In relation to a particular property, there may be more than one dutyholder – for example, where the owner of the property leases part or all the property to a tenant and the lease includes a repair obligation, but the landlord retains the obligation to maintain the structure and common parts of the building. Where there is more than one dutyholder, the relative contributions to be made by each in complying with the regulation 4 duties are determined by the 'nature and extent of the maintenance and repair obligation owed by each dutyholder.
The Health and Safety Executive ('HSE') has published guidance on who is likely to be a dutyholder under the CAR 2012.
Noncompliance with the CAR 2012 can lead to various sanctions, including imprisonment, unlimited fine, remediation costs and civil liability.
What should you ask for from the landlord in relation to asbestos?
On a purchase of a property or the taking of a new lease, it will be appropriate ask the for the following:
- confirmation as to whether asbestos been used in the present structures forming part of the property.
- a copy of the record of the most recent assessment carried out in relation to the property.
- a copy of the written plan and any other records prepared for managing asbestos in the property.
- whether any asbestos has been removed from the property in the past.
If you have concerns about asbestos your commercial property solicitor will be able to help with investigations.
What other health and safety considerations are relevant?
If you are an employer or, the person who has control over the property (whether as owner or occupier) you are likely to be under an obligation to comply with the duties set out in the Regulatory Reform (Fire Safety) Order 2005.
The obligations include a duty to carry out a fire risk assessment, keep that assessment under review and take whatever fire precautions are reasonably practicable to ensure that the property is safe. The obligations start as soon as the responsible person takes ownership, occupation, or control of the premises. Therefore, as part of the general property investigation, it is wise to obtain as much information as possible about fire safety risks at the property in advance.
The CPSEs raise several enquiries regarding fire safety including a request for a copy from the seller or landlord of any Fire Risk Assessment carried out in relation to the property. This should be checked to ensure that any recommendations have been implemented.
Fire safety issues should also be ideally reviewed by a building surveyor who can give you professional advice on what needs to be implemented.
Plant and Machinery:
There are various statutory compliance requirements in relation to plant and equipment, and as a prospective buyer or tenant, you will want to ensure that these items are in good working order (and if not, factor any repair costs and exposure for non-compliance into the purchase price or rent). The CPSEs ask the seller or landlord for:
- confirmation that Items have been regularly tested and maintained.
- confirmation that there are no items requiring significant expenditure within the next three years.
- a copy of the most recent maintenance report relating to each of them.
- copies of any subsisting guarantees, warranties, and insurance policies.
A physical inspection will reveal obvious issues at the property that might incur expense or that you can negotiate for the landlord or seller to rectify before you take the property, but your commercial property solicitor can assist with the above more detailed investigations. A commercial property solicitor can also help tailor and then carry out the searches and enquiries that will be relevant for your business’s specific needs, timeline, and risk profile. Once the investigations are carried out, you should expect a report detailing any red flags and recommendations for further investigations.
Discovering issues early on will allow you to take a more informed view and present opportunities for negotiation to get the best deal possible. At Harper James we make sure we understand your objectives and offer pragmatic advice and services to suit your needs.