Remediation of contaminated land: Can a landowner counterclaim the costs of remediation from a third party, in a dispute concerning land leased to the claimant company? (Pullman Foods Ltd v Welsh Ministers and another – 2020)

Where land is contaminated by the presence of asbestos, can a landlord claim the costs of remediation of the property from a third party that caused the contamination as a result of its breach of covenant?

The background

In Pullman Foods Ltd v Welsh Ministers and another [2020], Pullman held a lease in respect of a piece of land at Swansea Dock, the freehold of which was held by the Welsh Government. A s.25 Notice was served on Pullman in 2013 to terminate the lease, and the lessee subsequently vacated in 2015. The lessee brought proceedings for compensation following termination of the tenancy pursuant to s37 of the Landlord and Tenant Act 1954. The Welsh Government did not dispute the entitlement to statutory compensation, but the freeholder brought a counterclaim against the lessee and its parent company, the third party (BFS), in respect of a number of breaches of covenant.

In 2015, the Welsh Government granted a licence to occupy on a short-term basis to BFS (the April licence).

The freeholder claimed that the buildings erected on the site had not been removed by the lessee on vacation of the land in accordance with lease covenants. The buildings remaining on the site contained asbestos-containing materials (ACMs). The Welsh Government granted two successive licenses to BFS to enable it to go into the site and remove the remains of the buildings and the ACMs. However, some of the ACMs had not been removed, and were spread across the site, resulting in the site being contaminated by asbestos which required extensive remediation.

The Welsh Government sought an indemnity from BFS for the cost of the remediation works pursuant to a provision in the licences, as well as claiming damages against the lessee for its breach of covenants and against BFS for breach of its obligations under the licences.

The decision

The High Court found in favour of the freeholder. Pullman had been in breach of the terms of the lease with regards to the obligations to remove the buildings and to leave the site in good and substantial repair and conditions. BFS had been in breach of the April licence, as it had failed to remove concrete slabs, including the shuttering asbestos and the ACM adhesive, as well as failure to remove certain quantities of asbestos. BFS had also breached an implied obligation in the April licence, as they failed to inform the Welsh Government of the certain quantities of asbestos. BFS also failed to inform relevant contractors of the certain quantities of asbestos, thereby failing to use its best endeavours to prevent contractors from distributing the asbestos over the site. Subsequently, this meant that it was as though they had distributed the asbestos themselves.

Pullman was liable for damages for breaching covenants within the lease, and BFS was liable to the Welsh Government for the full costs of remediation of the site. The court took multiple factors into account in deciding whether the works undertaken were reasonable, including social, political and environmental concerns relating in part to the fact that the Welsh Government was the freeholder.

Advice and action for landlords

Many would view this a ‘common-sense’ decision, whereby a third party responsible for contamination of a site established during its tenure and worsened by its contractors is liable for the costs of clean-up.

As well as demonstrating breaches of covenant by the lessee in respect of its actions, the freeholder needed to establish that the remediation works undertaken had been reasonable, and the court was satisfied that this was the case.