It is fundamental that landlords understand the importance of environmental regulations and potential contamination issues in the context of leasing property. Failure to consider these matters can be a costly oversight. As an example, in the recent case of Peel Land & Property (Ports No. 3) Limited v TS Sheerness Steel Limited, the quotes provided for the removal of rubbish ranged from £750,000 (a quote which carried strict criteria and wouldn’t remove the full amount of rubbish) to £3.5 million. Very expensive rubbish!

This case is useful as it considers who is liable for the disposal of waste in terms of the lease. Although an English case, it is a useful insight as similar issues arise in Scotland.

The background in this case is that in 1971, the original tenant, Thamesteel Limited, was granted a 125 year lease to construct a steelworks and use the property for steel manufacture only. The steelmaking process led to the generation of primary and secondary slag. The primary slag had re-sale potential and was quickly removed from the site. However, secondary slag could not be re-sold. For some time it was removed by farmers and used as a base for farm tracks however environmental regulations were tightened, removing this option, so the secondary slag began to build up.

In 2012 Thamesteel Limited went into administration and TS Sheerness Steel Limited became tenants under the lease. TS Sheerness did not carry on the business of steel manufacture. Instead they tried to remove the valuable plant and machinery from the premises and leave behind three large piles (amounting to approximately 30,000 tommes) of secondary slag. Both these elements became litigious but only the removal, or lack of removal, of the secondary slagheaps were considered in the current case.

The Judge considered whether the secondary slag would be considered ‘rubbish’ in terms of the lease and whether the tenant was in breach of its lease obligations. He did not focus on whether the rubbish was contaminative, although the elaborate (and expensive) process of removal was outlined.

The key provision under the lease was clause 2(16) which provided that the tenant was not permitted to “form or permit to be formed any refuse dump or rubbish heap on the premises but to remove… all refuse and rubbish”. Therefore, the Judge had to establish whether the slagheap was in fact rubbish in terms of the lease and therefore the tenant’s responsibility to remove.

As a starting point, the Judge took the ordinary and natural meaning of ‘rubbish’. The secondary slag had no re-use or re-sale value, was of no use to its owner and would be discarded. In this context it would be deemed to be rubbish. The judge went on to consider the meaning of clause 2(16) in terms of the lease as a whole. Although this was a long lease, the Judge held that the lease terms demonstrated that the Landlord maintained an interest in what was done on the site. Clause 2(16) clarified that the landlord wanted to ensure that when they re-entered the site they would not be faced with ‘items or materials no-one would want’. The judge considered the lease as a whole and held that the secondary slag fell within the definition of rubbish in terms of clause 2(16) and therefore the tenant was in breach of covenant.

Although the Judge did find in favour of the landlord in this case, it certainly acts as a cautionary tale. The key points to remember are that it is important to ensure a lease requires a tenant to comply with all relevant environmental statutory provisions and regulations. It is advisable for a landlord to keep an eye on, and be aware of, any potential accumulating waste on their site. The removal of waste can be very expensive; especially if it is contaminative waste. Landlords must also maintain an awareness of changing environmental regulations if this is likely to impact on the use of the land leased. Failure to do so can result in a costly process of removal and the landlords will have responsibility to do this.

If you are a Landlord and have any concerns about waste on your site or the terms of a lease please contact Corra Irwin.

This information in this publication only is based on our current understanding of the Law. It has been produced for information purposes only. Professional advice should always be sought before taking any action.

 MacLeod and MacCallum cannot take any responsibility for loss incurredfor acting or failing to act on the basis of anything contained in this publication.

November 25, 2014