Often buyers/tenants in commercial property transactions may prefer to obtain more information about the state and condition of land than provided by environmental desktop surveys (the Law Society’s recommended minimum level of environmental due diligence in most commercial property transactions). This could be due to a riskaverse approach to environmental due diligence, the transactional context (eg in corporate transactions, where little warranty cover or other contractual protection is offered by the seller) or a potential liability identified in the desktop survey.

Although a site reconnaissance survey (Phase I) or a physical site investigation (Phase II) will provide considerably more information, buyers/tenants should first consider the costs and turnaround time, particularly for Phase IIs, and whether alternative, more cost-effective follow-up actions can be pursued (eg enquiries of the local authority’s contaminated land officer).

Where a Phase I or Phase II audit is required, the appointment of environmental consultants involves not only selecting from the many consultancies that offer these services, but also managing the process through to the production of reports that meet the specific needs of due diligence.

The role of the lawyers

There is a compelling and important role for lawyers in this process for the following reasons:

• There is the possibility that any report prepared by an environmental consultant may be discoverable in legal proceedings. If it has been commissioned by a solicitor for the purposes of subsequently being able to advise their clients as to environmental liabilities, there is an argument that legal professional privilege may attach to the report, with the result that a court may not then be able to insist on its production.

• Lawyers should be able to manage the tender process for the work professionally, and advise as to the selection of a consultant appropriate to the particular circumstances. Although environmental consultants’ fees vary, so too do their expertise, experience, resources, professionalism and, importantly, terms and conditions.

• The standard terms and conditions of most environmental consultants are limited in terms of the extent of their liability, and lawyers can assist in negotiating appropriate contractual protection for the client. This is discussed below

• Lawyers can assist in formulating the consultant’s instructions and in the review of draft reports.

• If lawyers are managing the production of the reports, they will be in a better position to advise on the environmental liability issues arising out of the technical analysis in the draft and final reports, without having to request additional information from the consultants.

What to look for in environmental consultants

Generally speaking, appropriate consultants will meet the key criteria below:

• they are available to carry out the work within the necessary timescale;

• they have the necessary expertise (especially if the Phase I or Phase II involves specialist areas such as health and safety, nuclear waste or asbestos);

• they are competitively priced;

• there is no conflict of interest (eg where they are acting for the seller on other matters or have done so previously on several occasions);

• they have adequate insurance cover (see below);

• they have sufficient experience (for instance, the more experience they have of previous remediation schemes, the more accurately they may be able to produce a cost analysis for the issues identified);

• they will be willing to accept suitable terms and conditions; and

• the presentation and format of their reports is suitable and user-friendly.

Phase I/II reports and financial due diligence

Increasingly, environmental due diligence is being required to fit into the wider financial and valuation process. Consultants are therefore being asked to go beyond identifying risks from a technical perspective, and to quantify those risks. The methodology for quantifying risk may be the consultancy’s proprietary model, or may need to be formulated so as to integrate with the client’s wider financial valuation models. Given the uncertain nature of environmental liabilities, it is not uncommon to see potential costs presented on a scale (eg from a bestcase to a worst-case scenario). As a result of this growing emphasis on financially quantified risks, the consultancy market for Phase I and Phase II reports is beginning to be penetrated by the large chartered accountancy firms.

The tender process

Although, clearly, it is not necessary in every instance to put Phase I/II audits out to tender, it is often worthwhile, as costs can vary considerably, sometimes even on small instructions, and especially where a number of sites are involved. Environmental consultancies expect to have to tender for work, and can usually be expected to turn around a quote within one to two days. Lawyers managing this process might benefit from the following tips:

• It is sensible always to call and check availability before sending out an invitation to tender. Some consultancies may simply be unable to carry out the work in the required timescale.

• A few key points should be highlighted in the tender letter, namely, the nature of the deal, the timescale, whether a full health and safety audit is required alongside the environmental audit (this is likely to require an internal health and safety expert, who may not be available), confidentiality and whether the lawyer will be proposing their own preferred set of terms and conditions.

• Confidentiality should be emphasised. Consultants are familiar with entering into confidentiality obligations. Usually, they will do so if matters progress beyond the letter of tender, given that this should only contain very general reference to the number of sites and type of business. However, in some cases, even information of a general nature may be sufficient to reveal the proposed transaction, and in such circumstances, confidentiality obligations should be entered into before even the letter of tender is circulated.

• It is helpful to identify the senior individual responsible for pitching for work at the consultancy, and address the letter of tender to that person. This can save valuable time.

• When the quotes have been returned, the client may have a preference for one consultancy or another for reasons of its own (eg an existing relationship). Otherwise, the lawyer should be in a position to make a recommendation based on all the relevant factors.

Agreeing the scope of works

Generally, consultants should be left to set out their scope of works, which will be incorporated in or appended to the deed of appointment. The role of the lawyer is to review the proposed scope of works, and to ensure that, in principle, all relevant matters will be covered. The consultants are likely to have access to the site only once, and it is important that the information drawn from that visit is complete.

The scope of works should be broken down fairly comprehensively in order to satisfy the client that all relevant issues will be addressed. However, it should be borne in mind that a degree of flexibility is advisable. Circumstances do change, and an overly prescriptive scope of works could work against the client.

The deed of appointment

The box sets out the key terms which should be drafted into a deed of agreement appointing an environmental consultant. These documents can require lengthy and careful drafting. Consultants will often be keen to impose their own standard terms and conditions. However, these should usually be avoided, given that they can sometimes incorporate unreasonable limitations on liability, and omit obligations and acknowledgments which protect the client (eg reliance on reports, indemnity for damages arising out of negligent work and a floor on PI cover). Environmental consultancy is a competitive market, and practitioners should advise that, where reasonable terms protecting the client are rejected, it may be prudent to look elsewhere.

The following are a few specific issues to be aware of in the negotiation of the deed of appointment.

• Provision of erroneous information: Consultants will usually attempt to limit their liability for negligence due to erroneous information provided to and/or received by the consultant. It is sensible to provide that the consultant should not rely on such information where an experienced and professional consultant, exercising all due care, should have been able to identify such information as erroneous.

• Professional indemnity cover and financial limit of liability: Consultancy firms should be expected to offer PI cover of at least £1m-£5m (although some offer much more), and to limit their liability in relation to the report to that sum. However, it is important to note that the level of aggregate cover offered under any one appointment can be significantly diluted by a high volume of reports. If there is any particular reason to be concerned, it may be appropriate to obtain contractual confirmation that, in the event of successful claims against consultancy firms which reduce the available cover for any claims made in a given year, the firm should obtain top-up insurance to the level required. In addition, it may be sensible to check with the consultant at the time of commissioning reports that they currently have the full cover (in other words, claims have not already been made in relation to the current year which may reduce the aggregate limit for any further claims brought within that insured period).  © Property Law Journal