Construction law knowhow by David Lewis

Site unseen: some practical problems associated with ground conditions

29/05/2010 15:50

Until the law of gravity is repealed, buildings will continue to rest on land, and the stability and utility of every proposed new building will continue to depend upon the condition of that land: its ability to support the structures to be erected on it, and the extent to which it may be polluted or contaminated.

Since 1st April 2000 whoever “caused or knowingly permitted” the presence of contaminating substances is initially responsible, under the Environmental Protection Act 1990, for carrying out necessary remediation works to contaminated land. But if that person cannot be found, responsibility lies on the owner or occupier of the land.

Where land is being developed under a construction contract, it is important to allocate the risk of problematical ground conditions between the developer and the contractor, i.e. to decide whether or not the contractor shall remedy those conditions at his own cost.

It is equally important for the construction contract to say whether or not the developer is responsible for any information he may have supplied to the contractor about site conditions.

The various standard-form engineering contracts do attempt to allocate these risks, though not always with crystal clarity. The JCT forms of building contract, however, are silent about them. It is common for standard-form contracts to be amended, or for wording to be inserted in the contract documents, to cover the risks. Otherwise, and generally speaking, a design and build contractor is more likely to bear the risk of adverse ground conditions discovered after the start of works than a contractor working under a traditional form of contract, under which these risks remain largely with the developer.

Developers commonly appoint a site investigation consultant to inspect the site and provide a report which will be included in the contract documents. If adverse conditions appear later that were not anticipated in the report the contractor may argue successfully that he was entitled to rely on the report.

The developer’s appointment of the site investigation consultant is frequently effected by correspondence: often a bare letter which does not require the consultant to provide warranties in favour of third parties (or to maintain any professional indemnity insurance to cover his negligence).

When the property comes to be sold, the developer may provide the buyer with a copy of the site investigation report. If the report “clears” the site, the buyer will want to be able to rely on it. But the report alone will usually be of little or no benefit to the buyer (except as “comfort”) because there is no contract between the buyer and the site investigation consultant.

Most buyers will therefore require a direct warranty from the site investigation consultant. The developer, however, may be unable to procure such a warranty if the appointment does not require the consultant to provide one.

Consequently the developer may have no alternative but to assign (i.e. transfer the benefit of) the consultant’s letter of appointment to the buyer.

This will not necessarily satisfy the buyer, who would probably prefer a formal warranty, executed as a deed with a twelve-year limitation period (a letter of appointment would normally be under hand and could be legally enforced only during a six-year period) and with a covenant by the consultant to maintain professional indemnity insurance for a specified minimum sum during the limitation period.

Developers can minimise these problems: first, by stating in the building contract that the contractor carries the risk of unstable or contaminated ground conditions, should make his own inspections, and should not rely on any site investigation report commissioned by the developer.

Secondly, the site investigation consultant’s appointment should require him to provide warranties in a specified form in favour of any lender, buyer or tenant (with a clause permitting assignment of the warranty).

A developer should avoid relying on case law, which is far from settled, to determine the allocation of ground condition risks. It is much safer for the developer and contractor if the building contract clearly allocates these risks and allows the contractor to rely on a site investigation report; and if the appointment of the site investigation consultant expressly requires warranties in favour of lenders, buyers and tenants in a specified form.

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