An update on land contamination (Japanese Knotweed) April 2017

An update on land contamination

An update on land contamination Since our original article (reproduced below for ease of reference) there has been a landmark ruling against Network Rail in relation to Japanese Knotweed ("knotweed"). This may have far-reaching implications for major landowners and developers alike and should act as a good incentive to deal with contamination (including knotweed) at the earliest opportunity.

Two adjoining landowners, Mr. Williams and Mr. Waistell, sued Network Rail Infrastructure Limited ("Network Rail") in the tort of private nuisance for the presence of knotweed on Network Rail land immediately behind their properties which prevented them from selling their properties for proper market value. They sought an injunction to require Network Rail to treat and eliminate the knotweed on its land and damages for the diminution in value of their respective properties. They also sought damages for consequential loss including (as an alternative to an injunction) the cost of treating the knotweed and an insurance-backed guarantee.

Interestingly the Court rejected the argument that Network Rail were liable as the occupier of the land where the knotweed is present for its encroachment upon the adjoining land. This is because there was no evidence of damage to the properties from the encroachment of knotweed. Based on previous case law the Court found that evidence of damage was a necessary requirement for encroachment cases.

The claimants were successful in their argument that the presence of knotweed in close proximity to the boundary of their respective properties represented a sufficiently serious interference with the quiet enjoyment of their land so as to constitute an actionable nuisance. Network Rail were found to be in breach of this duty for the following reasons: 1. Network Rail had constructive knowledge of the risk of spread and consequential damage to the claimants' property from around 2012 / 2013; 2. Network Rail had failed to carry out its obligations as a reasonable landowner to eliminate and prevent the interference with the quiet enjoyment of both claimants of their land; The Court had no problem in finding a causal connection between Network Rail's breach of duty and the unlawful interference with the claimants' quiet enjoyment of their respective land. This had the effect of reducing the market value of the properties.

The above finding is particularly serious in that the knotweed was merely "within close proximity" of the claimants' properties. In this case, evidence was presented to the Court that lenders would not agree to lend on the security of a property within 7 metres of knotweed.

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The claimants were not entitled to a mandatory injunction compelling Network Rail to abate the nuisance and adequately treat the knotweed but they were instead entitled to recover damages in respect of a treatment programme and insurance backed guarantee and in respect of a residual diminution in value of their respective properties. The Court found that, even if the knotweed was treated and supported by an insurance-backed guarantee there would still be a diminution to the amenity value due to the stigma surrounding knotweed.

This ruling is particularly significant as the knotweed was an actionable nuisance before it caused actual damage to the neighbouring properties, simply because of its effect on the amenity value and the consequential diminution in value.

If you would like more information on our services, please visit www.howardkennedy.com here you will find all our latest news, publications and events. This material is for general information only and is not intended to provide legal advice. Š Howard Kennedy LLP 2016

Caution! May contain contamination – a sweetener for developers Originally published 27 July 2016 The struggle for the house building industry to meet the existing housing demand is well-documented.

Whilst there are many factors which contribute to this situation, land affected by contamination is certainly something that arises more frequently as the redevelopment of brown-field land is an area where both the planning policy and the technology of remediation are developing.

In order to try and address this, the government introduced a scheme of land remediation relief to encourage the redevelopment of land affected by contamination and this was later extended to include derelict sites. The relief allows companies (but not individuals) to claim a deduction in corporation tax for revenue and capital expenditure incurred in remediating certain contaminated or derelict sites.

This works as follows. For every £1 of qualifying expenditure incurred by a company (whether income or capital) on land remediation, the company can claim a deduction of £1.50 against its profits when calculating its corporation tax liability. In addition, trading companies that are not making profit (and so are not paying corporation tax) can surrender losses generated by land remediation relief and claim a tax credit (16% of the amount surrendered). For companies that have difficulties with cashflow an immediate cash payment may be of more use than a future saving in corporation tax when the company starts to make a profit.

For example, suppose a company with normal trading profits of £10,000 incurs £50,000 of capital expenditure on land remediation. The company is entitled to claim a deduction of £75,000 in relation to its expenditure, turning the £10,000 profit into £65,000 loss. As it has land remediation losses, the company may elect to claim a tax credit (paid by HMRC) of up to £10,400 (£65,000 x 16%) instead.

Alternatively, the company may claim a lower tax credit (or nothing), in which case the unsurrendered land remediation losses can be carried forward against profits of future years.

The requirements for claiming the relief are as follows: • The land is situated in the UK and has been acquired by the company for the purposes of a UK property business or trade carried on by it.

• At the time of acquisition all or part of the land is or was in a contaminated state. Land is in a contaminated state if it is in such a condition, because of substances in, on or under the land, that harm is being caused or there is a possibility of harm being caused, or pollution of controlled waters is being, or is likely to be, caused .

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• The company incurs qualifying land remediation expenditure in respect of the land. Qualifying expenditure means expenditure on land all or part of which is in a contaminated state and which would not have been incurred if the land had not been in a contaminated state. It is expenditure on relevant land remediation undertaken by the company itself or on its behalf. There is a further condition that the company's expenditure is not treated as subsidised to the extent that a grant or subsidy is obtained in respect of the expenditure, or it is otherwise met directly or indirectly by a person other than the company.

The relevant land remediation comprises the doing of any works, the carrying out of any operations or the taking of any steps in relation to the land in question, any controlled waters affected by that land or any land adjoining or adjacent to that land. The purpose of the activities must be to prevent or minimise, or remedy or mitigate the effects of, any harm, or any pollution of controlled waters, by virtue of which the land is in a contaminated state, or to restore land or waters to their former state.

As you would expect, there is no entitlement to relief in respect of expenditure on land which is in a contaminated state wholly or partly as a result of any thing done, or omitted to be done, at any time by the company claiming the relief, but importantly it is also excluded if a person with a connection to the company is so responsible. In addition, if a land owner is already under a legal obligation under certain legislation to undertake remediation work (for example expenditure is incurred as a result of being served with a notice under certain specified legislation), it is not entitled to relief.

Developer / investor clients should consider whether they have incurred any expenditure in removing contaminants from land in the previous 6 years and which were present at the time of purchase. A company must elect, within two years of the end of the accounting period in which the expenditure is incurred, to treat qualifying capital expenditure as a deduction in computing their taxable profits. The additional deduction (50% of the qualifying expenditure) can be claimed at any time within 6 years of the end of the accounting period in which the qualifying expenditure is incurred.

If you would like more information on our services, please visit www.howardkennedy.com here you will find all our latest news, publications and events. This material is for general information only and is not intended to provide legal advice. Š Howard Kennedy LLP 2016

Contact:

Amy O’Gorman Associate: Real Estate T: +44 (0) 20 3755 5637 E: amy.o’gorman@howardkennedy.com

If you would like more information on our services, please visit www.howardkennedy.com here you will find all our latest news, publications and events. This material is for general information only and is not intended to provide legal advice. © Howard Kennedy LLP 2016