Rating Manual - Volume 4 - Section 10 : Contaminated Land

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Section 10 : Contaminated Land

1. Introduction

1.1 This section provides guidance on the valuation of hereditaments built on or affected by contaminated land and list maintenance matters flowing from this. It also discusses land contamination issues generally.

2. The Definition of Contaminated Land

2.1 Contaminated Land is defined by the Section 78A(2) of Part 2A of the Environmental Protection Act 1990 which was inserted into this Act by Section 57 of the Environmental Act 1995. Part 2A in turn did not come into force until 2000. The Part 2A definition of contaminated land was extended in 2006 to include radioactively contaminated land.

The legislation provides -

‘78A (2) The following provisions have effect for the interpretation of this Part.

(2) "Contaminated land" is any land which appears to the local authority in whose area it is situated to be in such a condition, by reason of substances in, on or under the land, that-

a) significant harm is being caused or there is a significant possibility of such harm being caused; or

b) pollution of controlled waters is being, or is likely to be, caused;


and, in determining whether any land appears to be such land, a local authority shall, subject to subsection (5) below, act in accordance with guidance issued by the Secretary of State in accordance with section 78YA below with respect to the manner in which that determination is to be made.

(3) A "special site" is any contaminated land-

a) which has been designated as such a site by virtue of section 78C(7) or 78D(6) below; and

b) whose designation as such has not been terminated by the appropriate Agency under section 78Q(4) below.

(4) "Harm" means harm to the health of living organisms or other interference with the ecological systems of which they form part and, in the case of man, includes harm to his property.

(5) The questions-

a) what harm is to be regarded as "significant",

b) whether the possibility of significant harm being caused is "significant",

c) whether pollution of controlled waters is being, or is likely to be caused,

shall be determined in accordance with guidance issued for the purpose by the Secretary of State in accordance with section 78YA below.’

3. The issues

3.1 Within the rating context, it is likely to be contended, in any appeal, that the hereditament has been constructed on, or is affected by, ‘contaminated land’. This raises two essential questions:

  • Is the land contaminated?
  • And on the assumption that it is contaminated, what effect would this have upon the hypothetical tenancy and rateable value?

4. Consideration of the issues

4.1 The policy to adopt is based on market reality so far as this is compatible with the statutory requirements and existing case law. In essence: 'If the market is not affected by such a situation why should the rating hypothesis’?

(i) The level of contamination

The Local Government Finance Act 1988, requires all properties to be valued on the basis that it is the hypothetical tenant who is responsible for maintaining the hereditament and perhaps more importantly, refers specifically to the physical state of the property as a matter that is required to be taken at the material day when determining rateable value (Sch 6 para 2(7)(a) - "matters affecting the physical state or physical enjoyment of the hereditament").

Unless the remedy of contamination could be termed ‘repair’, it is considered that the VO is obliged to have regard to the actual circumstances of the property as at the material day. Consequently establishing the facts on this day will prove to be essential.

(ii) The effect on value

The issue essentially is what assumptions can one make with regard to who (landlord or tenant) is responsible for any contamination and what effect would that have upon the hypothetical tenancy and the rental bid?

4.2 There is, perhaps, a range of values to consider in connection with contamination in terms of both extent and severity. At one end of the scale there may be a property that is not particularly affected by contamination and some areas may be largely unaffected. At the other extreme is property that is so severely contaminated that it is incapable of beneficial occupation and therefore not rateable.

4.3 This raises a number of questions:

  • If the property is contaminated, is that contamination such that it would reduce the open market rental value of the property?
  • Does the fact that a property is in a contaminated condition automatically lead to the assumption that a reduction in rental value (and rateable value) is appropriate?
  • Is the condition of the property such that a tenant would materially discount his rental bid to reflect the fact that the land is contaminated?

4.4 The case of Robinson Brothers (Brewers) Ltd v. Houghton and Chester le Street AC 1937 is pertinent in this respect:

Lord Justice Scott: "every intrinsic quality and every intrinsic circumstance which tends to push the value up or down" must be taken into account when valuing a hereditament for rating purposes.

It is likely that any appellant will wish to use this case particularly so if the rental evidence on the appeal property is of assistance. The VO should seek to rely on other rents and assessments in the locality that may show the general effect of any contamination.

4.5 All properties should be valued as if they were vacant and to let and therefore whether the subject property is occupied or not is irrelevant. The hypothetical tenant will come fresh to the scene and will see a hereditament, which may or may not be built on land, which is, or was, at one time contaminated. What would he do in such circumstances?

4.6 If the land is contaminated the polluter may be the owner or occupier or the previous owner or occupier. The general rule under the contamination legislation, in such matters, is that the 'polluter pays'. If that party cannot be found the current owner or occupier may be liable. The incoming hypothetical tenant cannot be held responsible for pollution he did not create and it is likely that the hypothetical landlord would be liable to undertake any necessary works to comply with the statutory obligations. It is therefore highly unlikely in such circumstances that the landlord would agree to a reduced rent.

4.7 There is however, the question of stigma. Rents in the open market may reflect that factor. The VO should make comparisons, if there are any, with those in the locality to see if the market reflects this.

5. Case Law

5.1 There are no cases other than that discussed below (Fusetron Ltd and J. G. W. Coatings Ltd v. Whitehouse (VO)) that have come before the Lands Tribunal where effect of contamination was an issue.

The fact that this case is the first of its type suggests two things:

Firstly that the matter may be regarded as something of a test case and secondly the fact that this fundamental point has not previously proceeded to LT suggests the rating world's acceptance that the effect upon the hypothetical tenancy by contamination is either non-existent or de minimis.

5.2 The key case on this topic is the Lands Tribunal case of Fusetron Ltd and J. G. W. Coatings Ltd v. Whitehouse (VO). This case involved two small factory units built in 1984 and 1990 and forming part of an industrial estate in the Don Valley area of Rotherham, South Yorkshire. The land had previously been the site of two gas works and was, as a finding of fact in the decision, contaminated by them (Arsenic, Cyanide and Phenol). In the decision, the Member made a minor adjustment for disabilities in respect of one of the properties (not contamination related), and reduced the assessments of both hereditaments by 10% to reflect the contamination deemed to be found at this location and its potential effects.

The Ratepayers' Case

5.3 Briefly, the ratepayer argued that: there were high levels of contamination affecting the two sites; that the rental evidence demonstrated that the two hereditaments were over assessed notwithstanding the contamination issue; and that the actual rent on one of the appeal properties was the best evidence of value.

The VO's Case

5.4 The VO argued that although the sites may be contaminated, this is common in the locality and would be reflected in rental levels generally. It was also suggested that any contamination would not affect the hypothetical tenant because he would still derive benefit from the occupation of the hereditament. Under rebus sic stantibus, he would not be able to structurally alter the hereditament and that any contamination would be contained beneath the concrete that covered most of the industrial estate. It was also argued that the rent on the appeal property could not be relied on for a number of reasons.

The Decision

5.5 The member decided that, "the rent of the first appeal hereditament does not constitute reliable evidence of rateable value"; the assessments accord with the rental and comparable evidence except that the first appeal property requires minor reductions for the control room and lack of off-street parking; and a 10% allowance should be made in respect of contamination of the soil.

5.6 The ratepayers demonstrated exceptional contamination (ie. greater than to be found on the estate or locality generally) at the appeal properties or on sites contiguous to them. For example:-

"The1982 report categorically stated that very high concentrations of free and combined cyanide and spent oxide, still existed after reclamation in a location adjacent to the appeal hereditaments ……” and

"…(GSG) carried out detailed investigations at premises then occupied by …(HRPCL) in 1995; the premises were situated next to the second appeal hereditament and directly across Mangham Way from the first appeal hereditament.

The conclusion of the GSG report, which [the ratepayer] produced, was that there was a high concentration of arsenic, cyanide and free cyanide, which were health hazards; …" and

"Alcontrol UK analysed samples from the sites of both the first and second appeal hereditaments early in 1997; these co-related with all previous investigations and what had been observed by the personnel of both appellants during development of their sites. [The ratepayer] produced the certificates of analyses, which showed total cyanide at 1720 ppm, confirmed by repeat results at 2087 ppm, at the site of the second appeal hereditament and 3720 ppm at the site of the first appeal hereditament. …"

5.7 In his decision the member said:-

"As to their specific sites, [the VOA expert witness on contamination] accepts that the site of the second appeal hereditament was affected, but thinks the site of the first appeal hereditament was less likely to have been affected." and

"[The VOA expert witness on contamination] concedes that, whether as the result of original contamination, or remediation works, it is possible that there are residual levels of contamination under the appeal hereditaments, …" and

"The only possible justification which I can see for some allowance in respect of contamination, is in relation to a point raised by [the ratepayer] in cross examination of [the VO] about possible difficulties arising in the case of installing machinery which required excavation. In the case of the specific example put to him, the installation of a balance weight to a computer-controlled machine, [the VO] thought such work would probably not be within the rebus principle, but I think that the installation of non-rateable plant and machinery is within the rebus principle and it is possible that such installation might involve excavation, which could give rise to problems and a reasonably well-informed intending yearly tenant might make some allowance for it in his rental bid, although I do not think it would be very substantial. I would distinguish any such allowance from an allowance simply for stigma."

5.8 As a finding of fact the member concluded that the soil was contaminated and his decision relies heavily upon this finding.

6. Application of the Decision

6.1 A maximum allowance of 10% for contamination should only be given where the ratepayer is able to demonstrate exceptional contamination to the site of the hereditament or the site of a contiguous hereditament. In the majority of cases where the hereditament may have similar contamination to the rest of the estate or district, then no reduction should be given ie. the contamination is not exceptional. Any effect (eg. for stigma) should be reflected in the rents and therefore should also be taken into account in the assessments.

6.2 It is not anticipated that the member’s interpretation of rebus should cause any difficulty.

6.3 Attached are appendices for guidance, outlining the likely causes of contamination; the past industrial uses likely to give rise to contamination; and lists of hazardous substances and generic groups.

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