A recent English case, Peel Land & Property (Ports No. 3) Limited v TS Sheerness Steel Limited, has focussed attention on these issues. Although the case relates to property in England, the same issues apply in Scotland.
Facts of the case
In 1968 the tenant (a company called Thamesteel Limited) was granted a 125 year lease. Thamesteel agreed to build a steelmaking plant and rolling mill, and the lease stated that the site could only be used for the purpose of steel manufacture.
Steel production ceased in 2012 when Thamesteel went into administration. TS Sheerness Steel Limited (which was a company in the same group as the tenant that was in administration) acquired the business and assets of Thamesteel from the administrators in mid 2012 - and so became the tenant under the lease. However steel making was not resumed on site and there appeared to be no immediate prospect of it doing so. Instead TS Sheerness appeared intent on removing the valuable plant and machinery from the site and leaving the slag heaps on site.
Did lease oblige TS Sheerness to remove slag heaps from the site?
The case concerned a number of issues between the landlord and tenant but the issue on which I want to concentrate relates to three large piles containing about 30,000 tonnes of secondary slag which were on the site and the TS Sheerness' obligations under the lease to remove " rubbish dumps" from the site and whether or not slag was "rubbish" in the context of the Lease.
Secondary slag is generated through the steelmaking process. The process generates two forms of slag - primary slag and secondary slag, or put another way good slag and bad slag.
Primary slag is relatively stable and can be crushed and processed for use in civil engineering road applications including the manufacture of asphalt. As such, primary slag generally has a re-sale value and the facts of this case indicate that the primary slag was usually removed from the site within days of it being produced so it could then be processed and sold.
Secondary slag does not have the physical stability of primary slag and has a high proportion of lime, silica,and magnesium oxide together with phosphorus and sulphur. Secondary slag had been used in low value applications such as low impact foundation material for farm tracks. However with the tightening-up of environmental legislation, this avenue for disposal is no longer available. As a result, substantial quantities of secondary slag built-up on site.
Fortunately for the landlord in this case, the Court decided that the lease imposed an obligation upon the tenant, TS Sheerness, which would extend to the removal of the waste that was on the site.
It was also fortunate for the landlord that the tenant (by then TS Sheerness) was still in existence and the possibility on enforcing the lease provisions against the tenant was available to the landlord. However it could have been so different had no one acquired the business and assets of the original tenant that had gone into administration. In that case, the landlord would have been left with a dirty site and no one to pursue, albeit that the site would have had some valuable plant and equipment on it.
Removal of waste is expensive
The removal of waste from a site is not an inexpensive exercise. The Environmental Regulations are constantly tightening-up the ability to dispose of waste via the traditional routes. This should generally be applauded and we need to be encouraged to re-use waste wherever possible rather than to continue to take first use of the world's natural resources. However the limits on disposal routes mean that the waist of the environmental hourglass is difficult to navigate and expensive to do so. In this case, it was thought that in order to take the slag away utilising a specialist processor and to dispose of it in the landfill facility in accordance with the Environment Agency Regulations would be in the region of £3.5 million.
There was an alternative suggestion that the slag could be taken away by Brett Aggregates at a cost of about £750,000 but there were practical difficulties because the base course material would have to be used within three days of manufacture and Brett Aggregates were unwilling to remove anymore of the secondary slag than it might need for immediate use at any time. Brett Aggregates would be conscious that if there was no likely outlet for resale then excess quantities could then be determined waste and subject Brett Aggregates to the obligations under the Waste Management Regime.
End of waste criteria
The revised Waste Framework Directive encourages the re-use of waste material so as to reduce the dependency on virgin material. This has encouraged a number of operators to try to seek commercial opportunities in this field. The industry is heavily regulated. It needs to comply with all appropriate environmental and waste legislation. These regulations are constantly changing. In order to ensure that waste no longer is waste, it will need to meet the end of waste criteria.
End of waste criteria is constantly evolving and hopefully will, in time, provide a sound understanding so that industry will then know with certainty what it needs to do to the waste stream in order to ensure that it no longer is waste. To a degree that will always be dependent on there being a receptive market into which such products can be sold.
Landlords do not like expensive surprises. If a landlord is leasing a site to tenant who will undertake processes or produce bi-products/waste or to a waste operator, the landlord needs to be very mindful that the lease properly addresses all the particular issues that will arise so as to ensure that the tenant complies with the necessary legislation.
Landlords might hope that they can rely on the regulator to keep a watchful eye out to ensure that sites comply with environmental legislation and that mountains of waste do not build-up with no reasonable expectation that they can be removed from the site without incurring significant expense. However this monitoring is not to be relied upon. The regulator is spread thinly over a wide industry.
In some cases the regulator fails to keep on top of operators. If a tenant goes bust, at a point in time when it is in breach of the environmental rules, its landlord is often left with the environmental liability, and with little option but to clean-up the site. Often, at that stage, the regulator will then be breathing down the Landlord's neck, requiring the work to be done quickly.
Landlords therefore need to be watchful and look to ensure that they are not fobbed off by their tenant claiming that the waste on site is a bi-product waiting to be commercially disposed of or that the waste on site meets all the regulator's requirements without being able adequately to demonstrate that in fact that is the case.
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