FEATURE LIABILITY TRANSFERS


LIABILITY TRANSFERS


WSP Environment & Energy has completed the UK's first environmental liability transfer to a third party, a solution that has been successfully pioneered for managing risk on land deals in the US.


Since the downturn, uncertainty over environmental liabilities has again become a major factor and potential barrier to the sale of brownfield land, as lower land values and developer returns become more sensitive to the cost of remediation, and former owners seek protection against purchasers becoming insolvent.


With its “Active Transfer” solution,WSP offers stakeholders the choice of transferring to an independent third party the obligation to manage environmental liabilities; that is, the cost of all known and unknown liabilities and the responsibility for the design and implementation of remediation works. The solution eliminates the guesswork on estimating reserves for potential liabilities, and enables owners and


developers to concentrate on their core business, not on complex remediation work.


“Since the recession, the landscape has changed,” says Richard Clayton, director at WSP Remediation. “When the economy was strong, real estate was so buoyant that errors in provisioning for remediation could be offset by the rising value of the real estate asset. With land values falling and investors and developers becoming more cautious, something that was once viewed as an asset has become a liability.”


European legislation is founded on the “polluter pays” principle. In 2010, two landmark court cases in the UK, concerning Corby District Council and Redlands Minerals and housebuilder Crest Nicholson, highlighted the possible risks for both landowners and developers involved in liability transfer and remediation works. “These cases have brought contaminated land into the headlines and introduced


an atmosphere of litigation,” says Clayton.


Over the last 15 years, WSP has managed liability transfers worth $230m in the US. But the solution was only used in Europe for the first time in 2007, facilitating the sale of a 500,000ft2


former imaging


facility for a photochemicals company in Liverpool to Acorn Developments, a subsidiary of New Jersey-based International Process Plants and Equipment (IPPE). “The photochemicals company was looking for something more robust than was available at the time,” Clayton explains. “The liability transfer was crucial – in fact, the deal wouldn't have happened without it.”


The contractual obligations outlined under the transfer agreement were reached in December 2010. Under the agreement, funds for managing the environmental liability were placed into a ring-fenced trust, on which WSP drew during the process.WSP assumed


WSP is bringing an innovative method of transferring environmental risk on brownfield land deals to the UK.


contractual responsibility for clearing up the site, including any cost overruns or third-party claims. Future liabilities are covered by the indemnity using an insurance policy, which will remain in place until 2019.


In fact, not only was the client able to remove the provisions for remediation from its balance sheet at a significantly reduced cost – just 55% of the original amount – but WSP was also able to return 25% of those ring- fenced funds to the stakeholders on completion.


Clayton anticipates there will be significant interest in the Active Transfer solution from developers and investors across the UK and Europe. WSP already offers its clients a range of land remediation services, so it seemed a natural step: “We see it as a real differentiator in a competitive space and the ultimate extension of our client offering – they can pass all liability to us and we will get to work removing it.”


richard.clayton@wspgroup.com SOLUTIONS 07

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