Purchasing an ex-service station site can present unique opportunities for redevelopment, however, buying such a property comes with a host of legal, environmental and financial risks. Understanding your obligations and liabilities before entering a Contract is critical to managing your investment and avoiding potentially costly surprises.
This happens more than you might expect – for instance, Transport for NSW purchased contaminated land for the Parramatta light rail project and in that case, remediation costs are reported to be over $100 million. Closer to home in Newcastle, a current mechanic workshop in Cooks Hill was sold at auction recently with old fuel storage tanks still underground. It is hoped that the buyer of that property understood the risks involved.
What are the risks?
Ex-service station sites carry a range of risks that are distinct from typical properties, often being hidden or not apparent without expert investigation. These risks include:
Environmental Contamination: Leaks from underground fuel storage tanks can contaminate soil and groundwater. Contamination can pose health hazards, cause environmental damage and could trigger regulatory action. The land may be unusable or require significant remediation.
Remediation: If remediation is required, costly and time-consuming processes such as soil excavation, groundwater treatment, or long-term environmental monitoring may be required.
Regulatory Compliance and Liability: Non-compliance with regulations, orders or notices may lead to fines or legal action.
Financial Risk: Contamination can significantly reduce a property’s value and limit its development potential. Some banks may be unwilling to lend against the property unless remediation is completed or adequately budgeted for. Even if the bank is willing to finance the purchase, it may be on unfavourable terms such as higher interest rates or reduced LVR.
Insurance Limitations: Standard property insurance policies often exclude pollution-related damage or liabilities. Specialised environmental liability insurance may be necessary, but it can be expensive and may still exclude pre-existing conditions.
Complications with Existing Tenants: If the site is leased, questions arise over who is responsible for managing and paying for environmental issues. Cleanup efforts might also disrupt the tenant’s operations, potentially leading to compensation claims or disputes.
Redevelopment Restrictions: Planning authorities may restrict future land use depending on the extent of contamination.
Who is liable for remediation?
Old service station sites are likely to contain underground fuel storage tanks, which may have leaked over time, causing contamination. In New South Wales, initial responsibility for the contamination sits with the person who caused the contamination. However, difficultly can arise where the person who caused the contamination cannot be identified and the responsibility may shift to the current owner. This means that buyers could inherit significant liability simply by acquiring the property.
Recommended due diligence
Recommended pre-purchase due diligence includes the following steps:
- Undertake environmental investigations and obtain comprehensive environmental reports
- Consult with environmental consultants and legal advisers
- Review the existing lease (if any) and historical site usage
- Consider negotiating warranties or indemnities in the contract
- Explore environmental insurance options
What environmental investigations should be done?
Engaging a qualified and reputable environmental consultant is advisable to assist in undertaking necessary environmental investigations. Such investigations might include a Preliminary Site Investigation or Environmental Site Assessment. If contamination is suspected, this may be followed up with a Detailed Site Investigation to assess the extent and recommend remediation actions.
What rights do buyers have?
Even if extensive due diligence has been undertaken, it is possible that something has been overlooked. In NSW, sellers have certain disclosure requirements in relation to the property. Failure to disclose contamination information may result in rights for the purchaser to make a claim or get out of the contract.
Conclusion
Buying an ex-service station site can be risky. Engaging a specialist in property law early in the matter is crucial in guiding you from due diligence through to post-purchase compliance.
Our team at Baker Love Lawyers can help. Please contact our office on (02) 4944 3322 to enquire.
