If you are looking to acquire a potentially contaminated site, you or your business could be at risk from having to pay for future remediation.
Entering into an Indemnity Agreement is a potential way to apportion liability with the Seller. This article considers when an Indemnity Agreement may be appropriate but also considers the limitations of this type of agreement.
When could an Indemnity Agreement be used?
An Indemnity Agreement could be used to agree that the Seller retains liability for any ongoing remediation which may be required as a result of the contaminated land.
On purchasing the site, an Enforcing Authority could seek to enforce against you under the Part 2A regime (Part 2A of the Environmental Protection Act 1990). You could have, for example, knowingly permitted the contamination to remain or introduced something on site which has created a pollution linkage. In this instance an Indemnity Agreement could be produced to the Enforcing Authority to demonstrate how liability between you and the Seller has been apportioned.
Limitations to an Indemnity Agreement
Even if an Indemnity Agreement is entered into, the Seller could become liquidated, meaning there is no-one to enforce this Indemnity Agreement against, and leaving you (as the Purchaser) potentially exposed. Further complications may arise when ascertaining liability for contaminated land which is found following the transfer, or if environmental law changes post agreement.
Given the limitations to Indemnity Agreements, here are some points to consider below:
- the consequences of acquiring an interest in contaminated land
- due diligence (including searches and inquiries)
- consider commissioning an independent report from environmental consultants
- consider commissioning an independent valuation
- obtain advice on contractual protection, including exclusion and indemnity clauses and apportionments, warranties, or consider making the contract conditional upon the seller complying with any remediation notices.
It is therefore important that you get expert legal advice at the outset of any potential purchase.
This article is for general information only and does not, and is not intended to, amount to legal advice and should not be relied upon as such. If you have any questions relating to your particular circumstance, please seek independent legal advice.
For further information please contact
Mark Howard, Head of Planning.
