The Law Society has recently issued updated versions of two of its practice notes: one on flood risk and one on contaminated land. These are interned to provide guidance for professional involved in land and property transactions, such as solicitors and conveyancers.
Guidance on Flood Risk
According to the Environment Agency, 1 in 6 of English residential properties are at risk of flooding, either from rivers or the sea (1.6 million residential properties), surface water (3 million), or a combination of these (1 million).
It is noted that flood risk can affect the availability of home insurance and/or mortgages, and therefore the value of and ability to sell a property.
The following sources of flood risk are cited:
- Flooding from the sea (typically associated with high tides and / or storm conditions).
- Surface water flooding, which occurs when local drainage systems are inadequate for heavy rain. This can include flooding from the failure of private drainage features, such as household soakaways.
- Sewer flooding, which sometimes occurs as part of surface water flooding, or may arise due to sewer blockages.
- Groundwater flooding, which occurs when the groundwater level rises high enough to cause flooding. It only normally occurs where there is a combination of low-lying land and permeable rocks.
- Domestic council tax band of A to H.
- Used for residential purposes.
- Built before 2009.
- The holder of the policy, or their immediate family, must live in the property for at least part of the year, or the property is unoccupied.
- Located in the UK, i.e. England, Wales, Scotland or Northern Ireland, but not the Channel Islands or the Isle of Man.
- Bed and breakfast accommodation, where council tax is paid (not business rates), and a home insurance (not a business insurance) policy is in force.
- Farmhouse dwellings and cottages (but the residential portion of the insurance must be separated out from that for the working buildings, such as barns, which are not covered by Flood Re).
- Second homes, including holiday homes.
- Homes occupied by home workers.
- Individual leaseholds and leasehold blocks of up to three units (provided the insurance is not held by a management company). This excludes the majority of leaseholds blocks, i.e. those containing four or more units.
- Buy to let mobile homes, owned by an individual. In general, buy to let properties are not eligible.
- Tenants or other individual’s contents’ insurance. This is eligible even when the building insurance isn’t covered due to it being for multiple unit blocks.
- The site may be uncontaminated
- The site is contaminated, but no site inspection has taken place.
- A site inspection has taken place, but no conclusions have been reached with regard to its classification.
- Some pollution is present, but not enough to warrant official designation as ‘contaminated land’ under the 2A regime.
Information on flood risk can be obtained from searches (e.g. of the Environment Agency’s database), surveyors’ reports and also from enquiries to sellers and landlords. The advice states that the initial response to enquiries may not give a complete picture, so further enquiries, information or investigations may be required. Just because no flooding has occurred previously, it cannot be assumed that there is negligible flood risk. In some cases, purchasers may need to commission a specialist flood risk survey, which is particularly useful since it can both evaluate existing measures that have been taken to mitigate flood risk, and recommend further measures to be taken in the future.
Commercial search reports regarding flood risk are offered by a variety of consultants and organisations. However, the Law Society’s guidance notes that the market for flood searches is not regulated, and that such reports can vary greatly in quality and scope. It is important that a service is chosen that is most in line with a client’s needs. Some information on flooding is normally provided in a standard environmental search, but this may not go into enough detail where the risk of flooding is significant.
The guidance notes that purchasers are responsible for insuring a property from the time at which contracts are exchanged. It encourages solicitors to recommend that clients contemplating a purchase should investigate the terms at which building insurance, including flood insurance, would be available prior to committing to buying a property. It’s pointed out that clients who experience difficulty in obtaining insurance may not be able to proceed with the purchase, since mortgage lenders may refuse to advance funds if the insurance position is uncertain. In some cases lenders may require insurance to have a minimum excess, typically £1,000, but in some cases only £500.
Flood Re-insurance Scheme
The law society flood guidance describes Flood Re, a new scheme for the re-insurance of residential property at high risk of flooding, which was introduced in April 2016. Many leading UK insurers, such as Aviva, Admiral, Churchill, Direct Line, Prudential, etc. are signed up to the Flood Re scheme. The scheme is used by the initial insurer to re-insure the flood risk, with the intention of reducing their exposure to any single event. It is financed by a levy on insurers, based on their share of the market.
The insurance must be held by an individual, a group of individuals, the personal representative of an individual or a trust acting on their behalf. Insurance policies held by companies or other organizations are not eligible.
Additionally, only properties that meet the following criteria are eligible:
The practice note considers some more ‘risk categories’ which will be eligible, provided they meet all the above criteria.
Thus the scheme will not generally cover commercial premises, static caravan park owners, blocks of flats or social housing (contents’ insurance will be covered in the latter two cases). If eligible, homeowners in high flood risk areas will generally get less costly insurance if they use a policy backed by Flood Re. However, those responsible for insuring blocks of flats or small businesses may still find it very difficult to obtain insurance.
The Use of Flood Risk Maps
The Law Society flood guidance deals with the topic of flood maps, some of which are provided on the Environment Agency website. Firstly there is ‘The Risk of Flooding from Rivers and Sea’ Map, which gives information on river and sea flood risk for 50m x 50m grid squares, classed as very low, low, medium or high. It doesn’t give the risk for individual properties, which may differ considerably within one grid square; for instance, one house may be significantly higher than another. The map also gives no details on the likely depth, speed and quantity of water that might be expected. Flood risks from other sources, such as surface water or ground water, are not included.
Another Environment Agency map is ‘The Risk of Flooding from Surface Water’ map. This gives information on the likelihood of surface water flooding, again with a very low, low, medium or high classification. An indication of the likely depth and speed of flood water is also provided. As with the rivers and sea map, the risk is not detailed for individual properties.
The third Environment Agency map is ‘The Risk of Flooding from Reservoirs‘ map, which gives a worse-case scenario of flooding should a reservoir’s containment fail. Likely depth and speed indications are included. The Agency points out that reservoir flooding is very rare; there have been no fatalities from reservoir failure in Britain since 1925.
In addition, the Environment Agency website has a ‘Flood Map for Planning (Rivers and the Sea). This shows the areas in flood zones 2 and 3, and also contains more details about flood defences and the areas protected by them than the ‘Risk of Flooding (Rivers and Seas) Map’.
The Land Registry produces flood risk data, based on the Environment Agency maps. Although they can be requested for a specific property, they in fact have the same level of detail as the maps (e.g. general results for a 50m x 50m square with regard to river and sea flood risk).
All flood maps have limitations, so the Law Society practice notes advise that they should not be used as the only means of judging flood risk.
Guidance on Contaminated Land
The advice on contaminated land recognises that local authorities’ registers of contaminated land are incomplete. Since the liability for contaminated land remediation can be applied to a current owner (class-B liability group), it is important to establish prior to purchase whether there is any likelihood of contamination. The current owner is likely to become liable if the original polluter (class-A liability group) cannot be identified or cannot be found (an individual may have died or left the country, or a company may have gone into liquidation). If a remediation notice is served with regard to the land, the owner may be forced to undertake remediation at its own cost. Failing this, the local authority may carry out remediation and charge the owner for the costs.
Solicitors acting for purchasers or mortgage lenders are advised to carry out a CON 29 (‘Enquiries of local authority’, enquiry 3.13) and an LLC1 search (‘Local Land Charges 1’).
However, the lack of such records pertaining to the site may be due to a number of reasons:
If contamination may be an issue, enquiries to the seller, landlord or borrower may elicit more information, as can searches of public registers. In many such cases, a desk study report will be required, to provide professional assessment of potential risks resulting from contaminant sources at the site.
Since the majority of land contamination is nowadays dealt with via the planning system, the suite of environmental reports required during this process are typically available on-line via local authority planning portals. If a planning application is relatively recent, these may provide valuable insight for purchasers and their advisers.
The guidance discusses legal steps that can be taken to minimise any future liability for a purchaser, including indemnity clauses in a contract or associated documents. In some cases, environmental insurance policies may be available, but need to be carefully examined for suitability.
When acting for a seller, solicitors are advised to be aware that future liability for remediation often cannot be transferred with the land. Problems are particularly likely to occur with a change of use. Contamination under a car park may be very low risk, but this can change if it is dug up and converted to residential housing. Solicitors are advised to word contracts so as to minimise the potential liabilities of sellers.
Leasehold sales can give rise to doubt as to whether liability for remediation is passed to the leaseholder or remains with the landlord. Any environmental clauses in a lease will require careful consideration.
There are a number of scenarios by which lenders may become liable for contaminated land. As a worst-case scenario, contamination discovered following site purchase may prevent or render unviable the planned development. Either of these may lead to cash-flow problems for the developer, and ultimately, ownership of the land reverting to the lender. In this scenario, far from being in a position to recover its funds, a lender may find itself obliged to undertake remediation.
When acting for a lender, it may be wise for solicitors to consider whether to commission a contaminated land report. Land contamination is a complex, multidisciplinary challenge, and the advice of an experienced consultant may prove invaluable in ensuring information is relevant and up-to-date.
Law Society, ‘Flood Risk (Practice Notes)’, (Feb. 2016). http://www.lawsociety.org.uk/support-services/advice/practice-notes/flood-risk/
Law Society, ‘Contaminated Land (Practice Notes)’, (April 2016). http://www.lawsociety.org.uk/support-services/advice/practice-notes/contaminated-land/
Butt, P., ‘New Guidance on Flood Risk and Contaminated Land Searches’, FirstTitle. http://www.firsttitle.eu/media/5522/New-guidance-for-conveyancers-on-flood-risk-and-contaminated-land-searches.pdf
Flood Re Website. http://www.floodre.co.uk/
The Environment Agency, ‘Risk of Flooding (Rivers and Sea) Map’, http://watermaps.environment-agency.gov.uk/wiyby/wiyby.aspx?topic=floodmap
The Environment Agency, ‘Risk of Flooding (Surface Water) Map’, http://watermaps.environment-agency.gov.uk/wiyby/wiyby.aspx?topic=ufmfsw#x=357683&y=355134&scale=2
The Environment Agency, ‘Risk of Flooding (Reservoirs) Map’, http://watermaps.environment-agency.gov.uk/wiyby/wiyby.aspx?topic=reservoir#x=357683&y=355134&scale=2
The Environment Agency, ‘Flood Map for Planning (Rivers and the Sea)’, http://apps.environment-agency.gov.uk/wiyby/37837.aspx