The valuation of contaminated land – Methods adopted in the UK and NZ
| Pages | 254-271 |
| DOI | https://doi.org/10.1108/14635780010324781 |
| Date | 01 April 2000 |
| Published date | 01 April 2000 |
| Author | Sandy G. Bond,Paul J. Kennedy |
| Subject Matter | Property management & built environment |
JPIF
18,2
254
Journal of Property Investment &
Finance, Vol. 18 No. 2, 2000,
pp. 254-271. #MCB University
Press, 1463-578X
Received 20 February
1999
Revised 1 September
1999
PRACTICE BRIEFING
The valuation of contaminated
land
Methods adopted in the UK and NZ
Sandy G. Bond
Department of Property Studies, Curtin University of Technology, Perth,
Australia, and
Paul J. Kennedy
Henderson Real Estate Strategy, London, UK
Keywords Contaminated land, Methods of valuation, Valuations, Contamination, Costs
Abstract Increasing litigation involving land contamination and an escalation in the number of
incidents where property owners have suffered financial losses from these cases has resulted in
negative impacts on property values and greater risks associated with investments in
contaminated property. To date, there has been little systematic research on the valuation
methodology that accounts for these risks. To help address this, two similar surveys were
undertaken within New Zealand (NZ) and the United Kingdom (UK), the results of which are
summarised here. The survey instruments were designed to determine what the respondents are
currently doing when providing advice or producing valuations to account for the financial risks
associated with investing in contaminated properties. It is hoped that the survey results will aid the
process of developing ``best practice'' methodologies for use by valuers.
1. Introduction
This paper presents and compares results from two surveys of practice in the
valuation of sites affected by contamination. Kennedy (1997) conducted a
survey of UK practice. Using a similar methodology Bond (1998) surveyed
practice in New Zealand (NZ). Copy of the NZ survey instrument is attached in
the Appendix. Section 2 provides a brief overview of problems associated with
the valuation of sites affected by contamination in each country. This
discussion highlights some of the difficulties valuers may experience when
assessing affected sites. In addition, a summary of research conducted to date
is presented together with an overview of the professional guidance available
to valuers in both countries. Section 3 provides an overview of the methodology
of, and results from, each survey. Conclusions and recommendations are
provided in Section 4.
2. Background
The late 1980s and early 1990s saw the development of concern surrounding
the ownership and investment value of sites affected by contamination. This
was prompted by the discovery of problems associated with a number of high
profile sites around the world. For example, Lekkerkerk in The Netherlands,
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Practice briefing:
Contaminated
land
255
Love Canal, New York, Times Beach, Missouri in the USA, and Seveso in Italy.
Owners of these sites suffered substantial financial losses as a result of the
contamination identified.
Some commentators in the UK have attempted to quantify the number of
potentially contaminated sites in the UK (excluding Northern Ireland). The
Department of the Environment (DoE) (1991) provide a qualified estimate of
between 50,000 and 100,000 sites. Richards (1995, p. 130) suggests the figure
may be as high as 120,000. These figures may convert to approximately
200,000 hectares (494,000 acres) of land. Surveys are currently under way in
England and Wales to further refine these estimates. Most of these sites will be
located in the more populous urban and sub-urban areas of the country.
In NZ, the Ministry for the Environment (ME) commissioned Worley
Consultants Ltd to report on the likely scope and severity of the land
contamination problem. Their report, released in December 1992, identified
some 7,200 potentially contaminated sites. Approximately 1,580 of these sites
are thought to be ``high risk''. These figures exclude a possible 800 sites
connected with the timber industry. The validity of figures provided for both
the UK and NZ is limited by theoretical restrictions with the research
methodologies employed. For example, the NZ research was confined to a desk-
top study, the findings of which rely heavily on estimates and judgement only.
The majority of land contamination in both countries is related to industrial
activities, and as the UK is more industrialised than NZ it is likely the problem
there is more severe. However, when considering the number of contaminated
sites per head of population the figures are likely to be closer.
The first attempt to develop a legislative framework for sites affected by
contamination in the UK was contained in the Environmental Protection Act
1990. In s143 the Government proposed the creation of registers of sites used
for potentially contaminative purposes. The Act specified the selection of sites
on the basis of historic land uses. No site specific analysis was proposed (e.g.
invasive site investigations).
Following negative reactions to this proposal the UK Government instigated
a detailed policy review. The result of this process was included in the
Environment Act 1995. Section 57 of the Act clarifies legal liabilities for sites
affected by contamination and provides the first UK statutory definition of
contaminated land. In addition, the Act provides a detailed hierarchy of
financial liabilities. These are based on the concept of ``Polluter pays''.
The Environment Act imposes a duty on local authorities to identify
contaminated sites and, where necessary, to serve remediation notices. If
remedial works are not conducted by the responsible party the local authority
may remediate the site itself and recover costs through the courts. The
interpretation of the definition of contaminated land is based on statutory
guidance. At the time of writing the release of this guidance has been delayed
until mid 1999. This delay will perpetuate legislative uncertainty in the UK.
In NZ it was the Resource Management Act 1991 (RMA) that brought
contaminated land issues to the attention of valuers. Under the RMA there is no
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