The market for industrial warehousing and logistics real estate assets in populated areas is strong, driven by the forces of e-commerce and changing retail behaviours. Meeting the expectations of the 'everything now' modern consumer requires an ability to deploy rapid delivery mechanisms, driving demand for last mile logistics, and overcoming the inherent difficulties of customer returns through sophisticated reverse logistics. As with all periods of significant change and disruption, new and different solutions are coming forward, with a trend towards co-location of industrial and logistics with other land uses, including residential, and the utilisation of smaller on-site power generation to overcome capacity limitations in the network.
Equally, the demand for housing in urban areas is also very high. Difficult industrial land is often favoured by policy-makers for new homes, as it comes with the added benefit of addressing historic land quality issues through remediation projects during redevelopment. The 2017 extension of permitted development rights to permit the turning of light industrial units into residential units has made conversion easier and co-location more probable (see our article).
There is undoubtedly a great deal of merit in many of these changes. There are arguments in favour of allowing the market to determine the most productive use of land, and bringing derelict and redundant land back into productive use is always to be welcomed. The under-investment in UK housing is well documented (read our report on housing as an infrastructure asset class) so providing new homes is necessary.
However, our experience as environmental lawyers is that this wave of co-location and mixed use development is not always entirely without difficulties. In this briefing, we look at some of the environmental issues that can arise, and the steps that can be taken to mitigate the risks.
These issues will be explored further in our presentation to the RICS Industrial Warehousing & Logistics Conference on 7 February in London. Do come along to discuss these issues and many other hot topics.
Noise and light pollution
One issue we have seen time and time again is the problems that can arise from neighbouring residential and industrial land uses. It always comes as a surprise to those running commercial enterprises that, after years of operating without any complaint, it can face the prospect of legal challenges that, at its worst, can shut a business down.
The principal legal mechanism at play here is the law of nuisance. The law of nuisance has evolved, appropriately enough, from a succession of cases dating from the first industrial revolution, when large scale urbanisation brought heavy industry and residents together in significant numbers, and public health policies struggled to catch up. The courts intervened to hold that an "unreasonable interference with the use and enjoyment of land" by a neighbour was actionable in the courts, and the primary remedy was an injunction to prohibit the "unreasonable behaviour".
Since that time, the law of nuisance has been a versatile and adaptable mechanism to address all sorts of problems. In our own environmental law practice we have been involved in cases on odour from food manufacturers, noise from firework-makers, dust from bridge-repair works, headlights from lorries in lay-bys, church bells, and even sun glinting from the blades of a wind turbine. However, the most common disputes often involve a classic case of competing land uses: residents disturbed by noise and artificial light from commercial operations in the vicinity. Even very low levels of noise and light can disturb sleep. Logistics hubs may need to operate for 24 hours; lights may be needed for safe operation or security; fleet vehicles may come and go at times convenient to customers' demands rather than the sleep patterns of neighbours; the potential for disturbance is significant.
It often comes as a surprise to business owners and leaders, but it has long been established that it is no defence for a business to argue "but I was here first". If a business' activities constitute a nuisance, the business is responsible for that nuisance, irrespective of whether the neighbouring landowner had 'come to' that nuisance. Of course, it is the occupiers that experience transient nuisances such as noise and light pollution, and so developers can build houses in industrial areas, sell them on, and it is the owners of those new houses who are affected and then demand that a nuisance be prohibited or restricted. The fact that the tension is created by developers but experienced by homeowners once the developer has sold on, leaving the neighbouring businesses to resolve the issues, has been the subject of criticism, and attempts to redress the balance have been sought. Published in July 2018, the updated National Planning Policy Framework (NPPF) explicitly adopted the 'agent of change' principle for the first time. Paragraph 182 of the NPPF now reads that:
"Planning policies and decisions should ensure that new development can be integrated effectively with existing businesses and community facilities (such as places of worship, pubs, music venues and sports clubs). Existing businesses and facilities should not have unreasonable restrictions placed on them as a result of development permitted after they were established. Where the operation of an existing business or community facility could have a significant adverse effect on new development (including changes of use) in its vicinity, the applicant (or 'agent of change') should be required to provide suitable mitigation before the development has been completed."
In essence, the 'agent of change' principle says that the person or business (i.e. the agent) responsible for a change in land use is responsible for managing the impact of that change. For example, this means that a housing development to be built near an existing warehouse would have to pay for the necessary soundproofing and, vice versa, a warehouse opening in an established residential area would be responsible for the costs. In other words, this places the responsibility for noise management measures on the incoming 'agent of change'.
However, this is only planning policy (a material consideration to be taken into account by the decision maker). It's a good start, but it's not a panacea. Much depends on how well this is enforced through planning conditions obliging mitigation measures to be incorporated at the design and build stage.
It's also worth noting that, from the business' perspective, planning permission to use the land for business use, or an environmental permit to carry out an activity, is not in itself a defence to a nuisance claim. Compliance with planning or permit conditions is the bare minimum, not the entire obligation, and where there are neighbours the business may need to do much more.
Air quality
Air quality has been a problem for UK urban spaces for a long time, but until recently it did not register a great deal in the public consciousness. That has changed in the past few years, with significant media coverage of both the UK's failures to meet EU air quality standards and some alarming figures on the number of premature deaths a year due to poor air quality: estimates suggest somewhere between 29,000 and 40,000.
Defra's new Clean Air Strategy for the UK, published in January 2019, reiterates the need to reduce the air emissions particularly associated with transport and industry. The strategy sets out the aim to reduce particulate matter emissions by 30% by 2020, and by 46% by 2030. Road transport is the largest contributor to nitrogen dioxide pollution and therefore the government aims to phase out the sale of conventional petrol and diesel engines by 2040.
The government believes that further legislative action is required to tackle pollutants including nitrogen oxides, ammonia, particulates, non-methane VOCs and sulphur dioxide, including reform of the local government framework to shift the focus towards prevention and to give local councils powers and funding for managing air pollution in their local areas (particularly 'targeted local action' to reduce pollution in 'problem' areas).
Among the reforms, Defra proposes to explore permitting approaches to reduce emissions from non-road mobile machinery (e.g. off road trucks, movable plant and generators etc.), particularly in urban areas. Most non-road mobile machinery uses red diesel due to its lower tax rate, which accounts for 15% of total diesel use in the UK and an even higher percentage in urban areas.
Future energy policy is to be geared more heavily towards improving air quality. The Government has reiterated its proposals to ban Renewable Heat Incentive (RHI) biomass schemes in urban areas on the gas grid, together with other similar measures designed to minimise the air quality impacts of RHI. The Government will be responding to its consultation on this in due course.
Air quality is relevant to industrial warehousing and logistics on a number of levels: petrol and diesel fleet are a source of emissions; back-up generation for the buildings and powering electric vehicles may also be a source of emissions; and the construction of the assets themselves in urban areas can cause exceedances of air quality limits. We can expect significantly tighter controls in the near future and those in the industrial and logistics real estate sector should be planning ahead.
Land quality
Land quality is also a consideration when addressing previously developed land. Industrial warehousing is often seen as a good use of previously developed land as the units and vehicle parking can be constructed on top of the land without necessarily remediating the ground to the same level as might be required for residential or open land. The UK's risk-based approach to clean up, which works on a 'suitable for intended use' standard, allows more flexibility than absolute limits imposed in other jurisdictions. Further, modern remediation techniques can make clean-up more cost effective (and less onerous) than in the past, and it's worth considering going beyond the bare minimum for a number of reasons: it's cheaper to do the clean-up during development than trying to retrofit a remediation scheme around existing structures; removing contaminants stops the risk of those contaminants migrating and causing an issue to neighbouring land, or to groundwater or surface water which can be more expensive to treat; and the land values can be increased and the marketability enhanced by removing potential buyer concerns about legacy environmental issues. We have acted on numerous site decommissioning and redevelopment schemes where a well-designed remediation project has payed dividends in the long run. We have also been involved in logistics sites where hidden issues that were not spotted (or were ignored) on development have caused significant problems down the line.
On the subject of land quality, it is not just chemicals that can cause issues. Invasive species such as Japanese knotweed can also be troublesome, especially when it spreads between neighbouring landholdings. The recent Court of Appeal decision in Network Rail Infrastructure Ltd v Williams dealt with exactly that point. A homeowner adjacent to Network Rail's land made a successful claim in damages for the increased difficulty (and cost) of developing the land which was considered to affect the owner's ability to use and enjoy the land, even without quantifiable 'damage' to the land in question and irrespective of whether the homeowner intended in fact to redevelop it.
High hazard industries
As large industrial areas gradually convert to warehousing and logistics, another issue emerges: how do you reconcile the competing land uses? As heavy industrial sites have closed around the UK it is often replaced with warehousing and logistics, particularly around the UK's ports, and we have been involved in numerous site closures and decommissioning of industrial assets for reuse as light industrial, warehousing and even residential. However, the change in a character of the area is often piecemeal, and sometimes mid-20th century high hazard industrial sites can sit in an island of modern, technology-rich logistics assets.
In some cases, it will be important for the local authorities to give careful consideration to their powers to revoke hazardous substances consent, particularly for disused sites where the hazardous substances consent is no longer used but still appears on official registers (and which might deter investment in the area). Local authorities should be more confident in managing land uses as the character of particular areas change over time. However, for those sites where ongoing high hazard facilities are operating near to industrial warehousing, it's important for property developers to consider carefully the distinction between hazard and risk. Yes, a facility that falls under the Control of Major Accident Hazards (COMAH) regime is - by definition - high hazard, but the risks are carefully managed and heavily mitigated through the COMAH regime. Developers should not be deterred from building out land that is ripe for reuse as industrial warehousing through a lack of understanding of hazardous substance consenting and the COMAH regime.
How can Burges Salmon help?
Burges Salmon combines sector knowledge of the industrial and logistic real estate sector with one of the UK's foremost environmental law practices, ensuring that your projects and assets benefit from a comprehensive understanding of environmental risks and allow you to exploit the opportunities that can arise from managing those risks is the most commercially advantageous manner. To discuss these issues further, please contact Michael Barlow or your usual Burges Salmon contact.