UK: Brownfield Land In The UK: Environmental Indemnities

In this second in our series of briefings on topics relevant to those involved in brownfield land, we focus on environmental indemnities.

These are perhaps most commonly encountered in an M&A context, but environmental indemnities are also frequently found in leases, storage agreements, service contracts and all manner of other contractual contexts where the nature of the relevant land, or past, present or future activities in question, carry environmental (particularly clean-up) risk.

Indemnities are obviously a standard mechanism for allocating risk in many areas of legal practice. However, there are various specific legal and practical issues that always need to be – but too often are not – borne in mind when drafting and negotiating any form of indemnity covering environmental risks. In this article we highlight just a few examples of issues to watch for.

Getting the basics right

There really is no such thing as a "standard environmental indemnity" (although it is a common enough request!).

Every site and every deal is different and, in our experience, significant time and cost is likely to be wasted if the parties do not take the trouble to work out the key "heads of terms" of an environmental indemnity before detailed drafting commences.

The commercial team might tell you that the other side has agreed to give an indemnity for historic environmental risks, "so please draft something up"; but what have the other side really agreed to cover?

  • All historic contamination at or under the site(s)?
  • "Known" and/or "unknown" contamination (of any type)?
  • Perhaps just contamination caused during the seller's period of occupation, or just particular "hot spots"?
  • What about contamination that has already migrated off-site onto third-party land prior to completion or vice versa: is that risk covered?
  • Does it apply to all sites in the deal or just some of them? In a share deal, what about former sites (see further below)?
  • What risks are covered: mandated clean-up, clean-up that a reasonable and prudent operator would perform even if not mandated, voluntary clean-up, clean-up necessitated by the buyer's future redevelopment of the site (see below), etc.?
  • Should contamination and associated obligations be determined under the law as it stands now, or as it stands when a compliance obligation is triggered? Does this include laws relating to human health and safety or town and country planning?
  • What about capital expenditure costs to bring plant and equipment into compliance with environmental law?
  • How long will the indemnity last?
  • What will the financial limits of cover be, the level of excess (and when reached, are claims paid from the ground up?) and other financial limits, and how do these interact with other warranty and indemnity cover in the SPA (if applicable)?

Environmental law is one of the most rapidly developing areas of legal practice today, and therefore one where the danger of over-reliance on previous "precedent" wording is particularly acute. Keeping up to date is therefore crucial.

For example, an indemnity precedent dating from before 2009 (and certainly before 2007) is very likely to take no account of the potentially significant changes to domestic legislation brought about by the EU Environmental Liability Directive: e.g., in terms of how the "Environment" is defined, the types of physical remedial works that can now be required, and the situations in which those works may have to be performed proactively without waiting for regulatory order.

Taking a holistic approach is also vital. All too often we see wording that focusses exclusively on regulatory requirements, but ignores the possibility that pollution liabilities can also arise at common law (e.g., claims in tort by neighbouring landowners) and in contract (relevant in share deals where the buyer acquires the corporate entity that owns the land in question, and not just the land itself).

If the buyer's intention is, or might be, to sell on the land again in the short term (i.e., before the term of the indemnity expires), or use it as security for financing, does the indemnity contain adequate assignment rights or, alternatively, rights to provide back-to-back indemnities and, if so, do such rights "work" from a drafting perspective alongside any change-in-control provisions, the definitions of the indemnified party, and so on.

These are just some of the basic questions that need to be addressed at the outset.

Former sites

Given that much of environmental law works on the "polluter pays" principle, former sites are a vitally important issue in transactions involving the buying or selling of a company's shares (as opposed to purely its assets).

There is a natural tendency to focus in due diligence on the existing real estate and other assets of a target company. However, the case may well be that greater actual or potential environmental liabilities lurk within the target's portfolio of formerly owned, leased or used land (about which, of course, much less is likely to be known).

This is particularly so given that modern levels of environmental stewardship are a comparatively recent (particularly post-1990) phenomenon. Land that a target company owned or used many decades ago may well have been subject to extensive contamination simply as a result of the then-prevailing industry standards (or lack thereof).

If the company you are acquiring has a long history, it is conceivable that in the process of acquiring what now appears to be a well-run and environmentally benign business, you are stepping into a raft of historic environmental problems.

Former sites also carry more risk in the sense that there will typically be less information available (or at least less up-to-date information) about current ground conditions and, in addition, the acquiring company will not gain control of the site at closing, and therefore generally will not be able to mitigate future risk (by cleaning it up, putting in place boundary protection measures, instituting a monitoring regime or the like).

Specific provisions – including but not limited to longer time periods and higher financial limits – may need to be included in any environmental indemnity to cover liabilities associated with former sites.

Trigger conditions

Obviously the ideal indemnity from the point of view of the indemnified party will be very simple, responding to any and all losses sustained under environmental law and/or in connection with environmental matters.

However, well-advised indemnifying parties will not agree to this and will instead seek to agree a regime whereby, rather than simply writing the proverbial "blank cheque", the indemnity will only kick in if defined "trigger" events occur (for example, if liability is established by a court, or if a regulator imposes a clean-up obligation).

If unexpected surprises in the cover given or received are to be avoided, agreeing triggers requires a clear understanding of not just prevailing environmental laws, but also how they are enforced in practice and how that might change in the reasonably foreseeable future.

For example, we see far too much drafting circulating in the market that only looks at risk through a "Part IIA" (contaminated land regime) lens. This ignores (or has not caught up with) the changes to English environmental law brought about by implementation of the EU Environmental Liability Directive 2004, which in certain cases has introduced duties (so-called "self-executing provisions") to carry out extensive remediation without any clean-up notice being served or other regulatory action taken.

Whose contamination?

This is a particular issue in the context of property that has been used for the same purpose (for example, a petrol filling station) for many years despite periodic changes of the occupier and/or where the new owner will continue the same use.

If gradual pollution occurs year on year by the same type of pollutants (for example, hydrocarbons), how do you prove who caused what? Depending on who bears the burden of proof and what evidence exists, this practical issue can be a major problem in environmental indemnity claims, so it is an issue that is best addressed upfront to the extent possible.

One approach is to expressly allocate the burden of proof and the risk of uncertainty in the legal drafting, but this is not straightforward and is likely to be controversial (the sort of issue parties tend to prefer to "kick down the road"). Another option is to conduct a baseline survey (whether on an agreed basis or independently of the other side), but there are important legal and practical downsides and complex tactical considerations in doing so. A future article in this series will look at baseline surveys in more detail.

Post-completion conduct limitations

From the perspective of the party receiving the indemnity, there would ideally be no conduct limitations at all. A one-paragraph indemnity may well be ideal for the indemnitee. In practice, the vast bulk of the drafting in a specialist environmental indemnity is there to protect the paying party and spell out what is not covered. A key part of this is post-completion conduct limitations.

There is no "one size fits all" solution. Negotiating the right conduct limitations (whether you are acting for the party giving or receiving the indemnity) requires a successful marriage of specialist knowledge of environmental law and practice, with a clear understanding of both existing and potential site conditions, and the activities to be undertaken there.

For example, it is common to include a carve-out for losses triggered or exacerbated by the buyer's voluntary post-completion drilling/digging. However, certain environmental laws will require intrusive surveys of ground conditions to be carried out (and require discovered contamination to be cleaned up) as a condition of obtaining or surrendering key environmental permits, without which the client's business cannot be operated. The same is true for works required (e.g., under planning laws) as part of future site redevelopment/extension.

Unless future site plans are thought about, and specialist advice taken on associated future regulatory requirements, standard/innocuous limitations in indemnity cover could produce unexpected results.

Other potential traps (for either side) include whether disclosure of information to regulators post-completion is permitted (the risk of "tipping off" versus the need to comply with mandatory "whistle-blowing" duties, or to protect corporate reputation), and how the indemnity responds to clean-up or other loss triggered by closure or decommissioning of sites, or parts of sites, variations of permits, sales or changes of occupier. Additionally, to what standard of remedial works shall the indemnity apply (is there a risk of goldplating the works?).

These are all examples of the need for the lawyer and client to focus as much on the future of a contaminated site as its past when negotiating contractual allocations of risk. Generally speaking, of course, the client will have a clear idea of its future plans, but it may be less aware of how forthcoming developments in the constantly evolving area of environmental law might impact those plans. A proper two-way dialogue, preferably done at the outset of negotiations, can avoid unnecessary pitfalls.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions