environmental regulations

Environmental regulations and the real estate industry
A.R. Ghanbari Parsa and M. Akhavan Farshchi

Background
The launch of the Environmental Data Report in early March 1994 by the United Nations Environment Programme was a grim reminder that despite much publicity and concern at international, national and local levels, there is still no sign of change in the global threat to natural resources brought about by man-made climate change. According to the report, signs of climate change, caused by worldwide atmospheric pollution, can already be detected. These result from unusually high average temperatures in the 1980s and the rise in mean sea level worldwide over the last 60 years[1]. This has implications for society at large as we are probably facing “what could be termed, the ‘Price of Progress’, which can only be considered to be progress of a kind”[2]. The environmental impact of the real estate industry ranges from individual health, indoor pollution, local environmental problems, national and international (transboundary) problems such as acid rain, and global problems including the depletion of the ozone layer. The acceptance of the inevitability of global change is, perhaps, striking; “for a notion that challenges the basis of modern industrialization, global change has gained extraordinary respectability” (Buttel et al., cited in [3,4]). The built environment forms the human habitat and therefore affects nearly all aspects of life[5]. With increased individual[6] and governmental concern about the environment, much pressure has been exerted on the real estate industry to take into consideration the impact of its actions on the environment. A recent DoE survey revealed that 30 per cent of the UK population regards environment and pollution as one of the most important problems the government should deal with (up from 8 per cent only three years earlier). This is in line with the findings of an EEC survey regarding the environment which confirms that over half the EU population (55 per cent) regard protecting the environment and preserving natural resources as essential to economic development[7]. The evidence of environmental deterioration at the global level has been the drive for most international actions. The real estate industry and its associated industries, which are the building
The authors gratefully acknowledge the financial support of South Bank University for this research.

The authors A.R. Ghanbari Parsa is currently the Aubrey Orchard-Lisle Senior Research Fellow and M. Akhavan Farshchi is a Research Fellow, both in the School of Urban Development and Policy, South Bank University, London, UK. Abstract The property development process lies at the heart of the production of the built environment, thus having the greatest impact on the natural environment. With the increased individual and governmental concern about the environment, much pressure is being exerted on the real estate industry to take more account of environmental considerations. In recent years there has been a plethora of national and European environmental legislation having a direct impact on different actors involved in the real estate industry. Examines the impact of such legislation on investors, developers, agents, and occupiers of property. Draws from results of recent research concerning the implications of environmental issues and the real estate industry. Concludes that in order to achieve the goals of sustainable development, there is a need to redefine the ambiguous roles of the professionals, clients, government and regulatory bodies.

Property Management Volume 14 · Number 1 · 1996 · pp. 6–23 © MCB University Press · ISSN 0263-7472

6

Environmental regulations and the real estate industry

Property Management Volume 14 · Number 1 · 1996 · 6–23

A.R. Ghanbari Parsa and M. Akhavan Farshchi

industry, the materials production industry and the distribution industry, have therefore come under closer scrutiny. The momentous public awareness is gradually pressurizing regulatory authorities and courts in favour of higher penalties and stricter enforcement measures[8]. This has been demonstrated by a number of recent events and the introduction of European and UK environmental legislation. Environmental regulations in particular are having a direct impact on the real estate industry in terms of investment value, professional indemnity and legal liabilities for existing and future contamination of real estate portfolios.

Environmental implications of the real estate industry
In recent years there has been a plethora of publications on the concept of sustainable development[9]. Thus, it can be argued that sustainability is now a well-understood concept[10]. This paper does not attempt to dwell on the merits of sustainable development, but it seeks to analyse the impact of regulative and legislative pressure on the key real estate players. The property development process lies at the heart of the creation of the built environment. “All cities require the production of space in the form of buildings and sites for various activities”[11]. Such activities have a profound impact on the environment. This results from the rapid consumption of the natural resources of water, fuel and raw materials for the production of building materials, and the utilization of land as a finite resource. According to Rydin[10] “The act of creating buildings, improving sites and general urban development is itself a production process which entails pollution, generates waste and has implications for resource use”. In the UK, the publication of the DoE White Paper This Common Inheritance[12] pointed to increased concern about current land-use planning, global warming, emissions of CFCs and CO2. This was further supported by the 1990 European Commission’s Green Paper on the Urban Environment. In 1994, the UK government also published its Strategy for Sustainable Development, which sets specific targets and objectives for achieving sustainable development. The comparison of the UK and the US building industries reveals similarities. The 7

US building industry accounts for 35 to 40 per cent of ozone depletion by chlorofluorocarbons (CFCs). Furthermore, a full 30 per cent of carbon dioxide emissions are caused by the built environment; as is 20 to 30 per cent of municipal solid waste, 35 per cent of annual energy consumption, and vast quantities of natural resource consumption[13]. In terms of CO2 emissions, the USA produces five tonnes per head per year as against an average of 0.2 tonnes in the developing countries. The OECD countries, with one-sixth of the world’s population, consume 11 times more fossil fuel energy per head than developing countries, and are responsible for half of the CO2 output. In addition they produce three-quarters of the industrial wastes, and four-fifths of hazardous waste, and own threequarters of the world’s cars. On the other hand, energy use related to the UK construction industry amounts to around 55 per cent of national energy consumption. The industry is also the source of 55 per cent of carbon dioxide emissions[14]. In 1990, UK buildings produced nearly 280 million tonnes of CO2 alone compared with 145 million tonnes by industry and 162 by transport. Commercial buildings accounted for 119 million tonnes of CO2, and in 1992 the cost of running UK offices reached £18 billion, much of which was unnecessary; in some cases the expenditure was the result of bad design, or of inappropriate specifications (including an unquestioning need for air conditioning), and in many instances a total absence of a coherent energy policy is evident. Similar evidence for other industrialized economies confirms that all anthropogenic ozone-depleting substances are produced by advanced countries[3]. The real estate industry, under escalating pressure from legislative and pressure groups alike, needs to concern itself with more direct pressure from the users of property, both residential and commercial, in order to keep up with the diverse and sophisticated clients’ demands[15]. A survey of the corporate occupiers of commercial properties in London (1992), revealed that building users insist on a more comfortable and cost-efficient working environment[15]. Current property market conditions also have created increased competition between developers. This competition demands higher quality residential and commercial property. Indeed, in the UK since 1988, the market has been a “users’ market”

Environmental regulations and the real estate industry

Property Management Volume 14 · Number 1 · 1996 · 6–23

A.R. Ghanbari Parsa and M. Akhavan Farshchi

compared with the “developers’ market” of the mid 1980s. It can be suggested that developers should therefore regard the production of more cost-efficient, energy-efficient and comfortable office and residential accommodation as a higher priority. However, this challenge, in the case of the UK, has remained vastly unresolved since the industry has for so long ignored the needs and requirements of the building users. So what options are open to the industry? We can conclude four scenarios in the broader debate concerning policy options and economic choices in tackling one of the major impacts of our environment, i.e. global warming. The first scenario “awaiting absolute proof” is usually relying on the uncertainty of the scientific evidence in establishing the causes of global environmental problems, while the second traditional perspective emphasizes a “business as usual” theme. This stresses reliance on the price mechanism and normal improvements in technology. The third scenario, the “no regrets” or “zero net cost” scenario, and the last scenario “precautionary or insurance principle” are only attempts to tackle the problem on an individual and voluntary basis. It is our belief that current theories of neoclassical economics cannot adequately cope with major intergeneration problems. Only those alternative economic and social theories which incorporate social as well as economic costs in their calculations for real estate developments could provide an answer to the complex problem of the environment. At the global level, international agreements including the Montreal Protocol, Brundtland Report and UN Rio Framework Convention and Agenda 21[16] have endeavoured to harmonize the international environmental actions. At the national level, different governments have responded in terms of legislation and policy statements outlining their targets. According to Elkington et al.[17]. “Environmental regulators have had a field day in the last decade, with a growing body of legislation and standards now in place in every industrial nation”. In the UK there has been more emphasis on the role of the market and less on legislation. Much of the UK legislative pressure emanates from the European Parliament. The debate is on the effectiveness of national legislation as against self-regulation by the market in achieving goals of sustainable development. Grove[18] 8

declares “if there is a single historical lesson to be drawn from the early history of conservation … it is that states can be persuaded to act to prevent environmental degradation only when their economic interests are shown to be directly threatened”. As a result of all these trends, a company’s actual and perceived environmental performance increasingly determines the ease and degree of success with which it enters new markets, makes and sells products, wins permission to develop new facilities and attracts capital and skilled new recruits[17]. As a result of various initiatives within the UK industry and the academic community, however, there is a wealth of information available on more technical areas. The leading UK construction and property research organizations, including the Construction Industry Research and Information Association (CIRIA), the Building Research Establishment (BRE) and the Building Services Research and Information Association (BSRIA) have played a major role in debating environmental issues and providing a platform for assimilating and disseminating research results[19]. Owing to its technical nature, such research does not take into consideration the essential methodological factors which are vital in researching the real estate industry. The Royal Institution of Chartered Surveyors (RICS) in the UK has also commissioned various studies and as a result has introduced special guidelines to its members on dealing with issues relating to the valuation of contaminated land and property[20]. A number of researchers have recently examined the environmental aspects of commercial real estate. These include Rydin[9,10,21], Parsa[14] and Turner[22]. Rydin’s[21] work focused on the nature of environmental concerns among house builders, mortgage lenders and estate agents as actors in the private residential market. The methodological approach for this research was to determine the behaviour of the actors involved in the residential property market based on a postal survey. The author’s earlier research, using the same methodology, investigated attitudes towards “green buildings” among providers and occupiers of commercial real estate. The major findings of this research indicated that investors and developers showed great concern for a corporate “green” image and favoured marketbased and self-regulatory initiatives. The

Environmental regulations and the real estate industry

Property Management Volume 14 · Number 1 · 1996 · 6–23

A.R. Ghanbari Parsa and M. Akhavan Farshchi

research results also revealed that corporate occupiers were more concerned about the environment and expected tougher legislation and protection against liability. Turner’s[22] research examines the impact of BS 7750, the Environmental Management System (EMS) on property investment and the valuation process. The preliminary results support the contention that the environmental performance of a tenant occupying a B1/B2 type property, being held as an investment, has a direct impact on the risk profile of that property. In addition, adoption of an EMS by the tenant is regarded as an appropriate strategy to reduce the environmental risk inherent within B1/B2 type property investments. As argued, buildings, the products of the urbanization process, because of their very nature, have a profound impact on the environment. The Building Research Establishment Environmental Assessment Method (BREEAM) study by BRE[23] in 1990 identified impacts of office buildings as global, neighbourhood and indoor. The list below shows these environmental effects. The BREEAM 1990 study related to new office buildings only, but a new initiative is due to target existing offices shortly. (1) Global effects: • greenhouse effect and global warming due to CO2 emissions; • ozone depletion due to CFCs and halons emission. (2) Neighbourhood effects: • legionnaires’ disease due to wet cooling; • local wind effects due to height of buildings; • use of land and destruction of natural habitats and the wildlife support system. (3) Indoor effects: • health risks due to air quality, use of hazardous building materials, etc. (Source:[23]). The effects listed above are just a few of the environmental impacts of buildings. When considering environmental impacts of the property market, other factors need to be considered. The CIRIA’s major research on environmental issues in construction[24] categorizes these as energy use (contributing to the global warming, etc.), resources use, pollution and hazardous substance, internal 9

environment, planning (land use and conservation) and policy (interests and legislation). The CIRIA’s other work also indicates that more firms are considering the implications of BS 7750 on environmental management systems and that they are concerned by environmental blacklists of building materials. The above analysis outlines a series of factors that need to be considered by various players involved in the real estate industry. These are partially related to the unique features of the real estate industry and are discussed in the following section.

Real estate development process
According to Ambrose[5], the production or renewal and use of any element in the built environment, whether it is a building or a facility such as a road, airport or other project, requires five relatively discrete operations. Ambrose categorizes these as the promotion, investment, construction, allocation and subsequent management of such facilities, and goes on to analyse the power hierarchies and relationships between organizations or agents who perform these functions. This is particularly important as these players own and organize the use of construction resources and thus have the power to allocate the product to consumers or users of the built environment[5]. These stages, and the operating organizations which carry them out, are illustrated in Figure 1. In this process there are different public and private agencies at work to fulfil certain criteria. The private sector agents include commercial and voluntary sector developers, investors, private construction companies and real estate brokers. Of the different types of built environment development, housing and commercial schemes such as offices and shopping malls occupy by far the largest proportion of the land area in most towns and cities. Rydin[10] asserts that in spatial aspects, the role of property is particularly important. Thus, she argues that “the arrangement of the occupying activity within a surrounding pattern of land use will determine the extent to which pollution, waste generation and resource exploitation impact locally or the adverse environmental impact is exported’’[10, p. 5]. Ambrose[5] also divides the development process into private and public sector operations or the market or the state operations. The type of operation determines the power

Environmental regulations and the real estate industry

Property Management Volume 14 · Number 1 · 1996 · 6–23

A.R. Ghanbari Parsa and M. Akhavan Farshchi

Figure 1 The built environment provision system
Savings level Economic factors Assessment of demand Non-democratically accountable private sector agencies 1 Commercial and voluntary developer 2 Private sources of finance plus subsidy 3 Private construction company 4 Real estate brokers 5 Private construction companies Effective demand for new/renewed BE Spending level "Cultural" factors Demographic factors

Promotion

Investment

Construction

Market Allocation Non-market

Maintenance Repair Conversion Re-allocation

End

Authorities with statutory responsibilities

Public revenue sources

State/local government construction departments

Housing, health and education departments

State/local government construction companies

Democratically accountable public sector agencies

State of need for new/renewal Economic factors Demographic factors

Assessment of need Source: [5]

hierarchies and relationships between organizations and agencies involved in a real estate development; that is to say that agents are subject to different forms of accountability and are motivated differently. For example, private developers, private investors, construction companies and estate agents each have different interests and obey “accumulative imperatives” as set by their shareholders or depositors. On the other hand, public agencies and government departments have legally defined status and spheres of responsibility. Their role is to undertake land development largely as part of their “process of discharging a responsibility” laid on them by law. The pattern of ownership within the built environment has a major impact on the functioning of the real estate market and thus on the divergence in interest. Figure 2 illustrates the different decision makers in the commercial real estate sectors. The construction and building industries have also been concerned with environmental issues “ranging from sick building syndrome, legionnaire, through the consumption of finite 10

resources, to global warming and ozone depletion”[25]. Waste generated by demolition – and construction-related activities
Figure 2 Decision making in the commercial real estate sector

Lender

Investor

Developer

Landlord Real estate agent Occupier

Environmental regulations and the real estate industry

Property Management Volume 14 · Number 1 · 1996 · 6–23

A.R. Ghanbari Parsa and M. Akhavan Farshchi

contributed 8 per cent of the total waste (annually 400 million tonnes of waste is produced by all sectors of the UK industries; see Figure 3). Planning professionals at national and local levels are also addressing the issues involved with the ideal of “sustainability”. According to Lorch[26]: “Sustainable development is feasible, and the UK Department of the Environment is actively considering its implications. Sustainable development acknowledges that environmental considerations are a valuable, frequently essential input to human well being”. The significance of financial institutions’ role in the real estate market can be underlined by the fact that they hold large portfolios of property in all sectors. In the domestic sector 33 per cent of households still live in rented accommodation and in the commercial sector only 10 per cent of buildings are owner occupied; which is further stressed by the uneven land ownership in the UK. In contrast, in the public sector, more than 50 per cent of buildings are owner occupied. The property market fluctuation in the 1980s is evidence of the highly cyclical nature of the capitalist development; we can contrast the deep trough in the early 1980s with the boom of the late 1980s. The rise of new-right policies in the Thatcher years brought about massive privatization in all sectors of the economy. The public sector share of all construction in 1978 amounted to approximately 40 per cent, £6,188 million out of the total of £15,372 million[27]. This was reduced to 30 per cent in 1986 and dropped further to 27 per cent in 1989. By 1994, economic recovery resulted in a significant increase in private

orders so the proportion of public sector works was at 34 per cent. In the period 19801989 commercial construction showed a real term increase of 313 per cent, standing at £7,727 million in 1989. Of the private sector development in the period of 1980-1989, housing orders were up by 174 per cent, and industrial orders by 76 per cent. Office development showed the highest increase of 333 per cent, shops’ orders increased by 254 per cent, and finally entertainment property by 212 per cent[5]. The above figures demonstrate the significance of the real estate industry in terms both of economic value and of the extent to which it utilizes resources. Our study of the environmental impact of the buildings cannot be complete without fully acknowledging and examining the economic, historical and cultural role of each participant in the development process. A recent study by Nevard[29], examining the impact of contaminated land on the property market in the UK, sought to determine the response of these different participants. Table I illustrates how the introduction of registers of contaminated land had raised awareness within the industry. The study draws a picture of the market’s perception of contaminated land in terms of image, legal liability, planning and regulation, new purchases and implications for existing portfolios.

Real estate developers
Developers have a crucial influence on the environment because of the nature of their activity, namely the identification of

Figure 3 Waste arising by sector (UK) Per cent 30 25 20 15 10 5 0 Agriculture Mining and quarrying Dredged materials Sewage sludge Household Commercial Demolition and construction Industrial 20 11 17 8 5 4 8

27

Source: Ministry of Agriculture, Fisheries and Food, cited in [28]

11

Environmental regulations and the real estate industry

Property Management Volume 14 · Number 1 · 1996 · 6–23

A.R. Ghanbari Parsa and M. Akhavan Farshchi

Table I Reaction of the industry to the introduction of contaminated land register

Lender Environmental image High Legal liability Register Medium/low WRA – clean-up High EPA – clean-up Medium Planning regulations Low New purchase Overall Very high Financially Varies Marketability Medium/high Existing portfolio Source: [29] Low

Developer Medium Medium/low High High High High High High Medium

Investor Medium Low High High Low High – High –

Occupier Very high Low Very high High Medium/low High Low Medium Very high

Valuer ? High/medium Medium Medium Medium High High High Low

development potential, determination of location, setting of design brief, appointment of design and construction teams and finally disposal of property. They actively shape the built environment through the production of buildings and sites[10]. Developers may be involved in clearance and new build, refurbishment, subdivision, conversion or a combination of activities[10]. Many developers in the UK, under the current market pressures, are including corporate environmental strategies into their business plans. It can be argued that by playing a more proactive and coordinated role, developers can incorporate a number of environmental considerations into the formulation of their development plans[19]. Evidence from the authors’ earlier research indicates that the number of developers who have assessed the environmental impact of their developments using the BREEAM method is on the rise. The same research revealed that developers are naturally very conscious of their public or corporate image, and are aware of its impact on the competitive edge of their companies. Increased competition, particularly at times of recession in the property market, could encourage them to take account of “green demands” made by corporate occupiers. These include cost of maintenance and management and a healthy internal environment. It is often argued that higher environmental considerations in buildings will lead to higher construction costs. However, it should be noted that higher quality buildings with lower occupation and maintenance costs could lead to faster disposal and occupation. Thus, developers can have a direct impact on the 12

environment. There are a number of developers in the UK who are beginning to consider the issue of sustainable development in the context of real estate development. The experience of setting particular targets for different aspects of the environment is seen to be especially attractive for the real estate developers. There are varied problems associated with different aspects of environmental considerations for developers. For example, on the issue of contaminated land, developers face two main problems. The first concern is to deal with the impact of contamination on the viability of the scheme and, second, the physical containment of the contamination needs to be assessed. This implies that in terms of development strategy, a developer before purchasing must conduct a full survey to establish the presence of any contamination by looking at adjacent sites; there could be cost implications in terms of treatment of the contamination and construction cost which may affect the value of the development.

Real estate investors
By their nature, investors also wield a great deal of influence over the process of urban change. Insurance companies and pension funds are two groups of investors actively involved in real estate. The largest property funds in the UK are currently managed by Prudential Portfolio Managers, an arm of the Prudential life assurance company and Mercury Asset Management. Insurance companies and pension funds currently own the largest proportion of commercial urban property in Britain and it is obvious that they have

Environmental regulations and the real estate industry

Property Management Volume 14 · Number 1 · 1996 · 6–23

A.R. Ghanbari Parsa and M. Akhavan Farshchi

a major impact on the UK real estate market[30]. The principal objective of these institutional investors in property is to obtain financial benefit by holding property rights. Despite a drop in the property portfolio holdings of the institutional investors during the 1980s in favour of equity and shares, they have remained highly exposed to liability risks from contaminated property holdings. In contrast to the short-term interest of the developers in property, institutional investors have a longer-term interest of over 30 years. It can therefore be suggested that, in environmental terms, they have a more significant impact. This is reflected in their ability to channel funds into property by expanding their portfolio holding; or by purchasing shares in property companies; or by acquiring and hoarding land; or by maximizing profit through development and sale which may alter the economic life of the building. Environmentally acceptable urban development initiated by institutional investors may be hindered by the fact that these investors, like any other profit-driven entities, pursue the maximizing of profit as their main motivation[10]; however, it is suggested that property investment is increasingly threatened by the risk from growing environmental pressure, danger of contaminated land, tenant risk and potential liability claims. The long-term interests of property investors in real estate investment should work as an incentive for more environmentally-friendly consideration, since environmental issues could adversely affect the value of their property assets. The potential risks are great and cannot be underestimated.

In addition to what has been mentioned above, property investment risks have been identified as: tenant risk, sector risk, structural risk, legislation risk, taxation risk, planning risk and legal risk. Of these, taxation risk, legislation risk and structural risk are classified as systematic risk, while tenant risk, planning risk and legal risk are said to be unsystematic risks[31]. While an investor is said to have no control over the systematic risk to which an investment is subject, it is argued that the investor does have some control over the unsystematic risk[33]. Tenant risk is one of the specific risks of property investment which, according to neoclassical explanations of modern portfolio theory (MPT), should be capable of being diversified away[22]. Baum and Crosby[31] define this as “… the chance that the tenant will affect returns by his actions”. A good example of this is a tenant occupying industrial property who causes contamination by his actions, for which in turn the investor or the owner of such property incurs liability long after the tenant has vacated the premises. A 1993 survey by Hillier Parker, a leading UK property consultant, found that 35 per cent of investors (respondents) would immediately walk away from a deal involving a property found to have some contamination. Figure 4 illustrates the reaction of the investors to the question of contamination; when dealing with contamination, investors either withdraw from a deal, or seek deductions of an element of cost from price or allow a reduction on yield. Almost 40 per cent of investors endeavoured to quantify the cost of contamination and deduct this amount from the purchase

Figure 4 Investors’ response when a degree of contamination is identified at a prospective purchase site
Action taken on identifying a degree of contamination 40 40 35 30 25 Per cent 20 15 10 5 0 35 28 19

Purchase precluded Source: [32]

Deduction of cost from price

Allowance on yield

Other

13

Environmental regulations and the real estate industry

Property Management Volume 14 · Number 1 · 1996 · 6–23

A.R. Ghanbari Parsa and M. Akhavan Farshchi

price. Approximately half of those who made a deduction also included an allowance in yield, varying from 0.25 per cent to over 1 per cent, to reflect the stigma effect.

Lenders
Banks were the main source of property financing in the UK during the 1980s. The UK clearing banks provided over half of new loans for real estate development[30]. In the second half of the 1980s they were followed by Japanese and European banks. Towards the end of 1991, UK clearing banks accounted for 46 per cent of loans to real estate companies while overseas banks accounted for 40 per cent of the loans[34]. Banks, as the main sources of property finances, are faced with increased risk arising from legislative changes concerning contaminated land. The recent growth in environmental legislation is requiring a significant increase in expenditure by many businesses and exposing them to potential civil and criminal liabilities. The risks affecting lenders could be due to “borrowers default as a result of environmental liabilities” and “incurring direct liability for environmental problems”[8]. These are determined by the Environmental Protection Act 1990 (EPA) and the Water Resources Act 1991 (WRA)[35]. Furthermore, many environmental statutes impose criminal liability where polluting events occur. Various provisions allow regulatory authorities to recover clean-up costs, not only from those responsible for the pollution or contamination but also, in some cases, from the owner or occupier of the site in question. Liability for such offences could be as high as the cost of remedial works, or upgrading and/or civil liability under common law. Under the US “Superfund” legislation, there is a measure to exempt lenders, called the “security interest exemption” where a lender holds mere “indicia of ownership”, provided the lender does not exercise management control over the borrower’s activities on the site. In the UK, however, there is no express exemption for lenders, although the risk of primary liability is perhaps not as great as in the USA[7]. Walsh[36] identifies three factors which are adding to lenders’ caution. First, banks are already heavily exposed to the property market and have suffered severe losses. Second, many have other national and international problems as a result of recession 14

and are being down-rated. Third, many of the foreign banks active in the UK have experience of environmental problems at home, for example the USA, Germany and Japan. Many institutions, therefore, are currently reluctant to lend on any property[29, p. 36]. Lenders are also concerned about their environmental image. Many lenders consider themselves “responsible” organizations and therefore could not risk any environmental disasters. The absence of any definition of “owner” in the EPA 1990, and WRA 1991, is the main cause of uncertainty about lenders’ legal liability. Mortished[37] confirms the evidence by stating that it is “widely believed that a bank taking possession of its security would find itself caught”. In assessing lenders’ liability, one major UK bank is of the view that in situations where the bank forecloses on a security and becomes owner in possession and thus liable for clean-up costs it “may be more financially beneficial for the lender to walk away from the security, thereby forfeiting only the primary sum and not incurring the secondary costs”[29, p. 37]. In order to minimize their liability many banks resort to one of the four following options: (1) absolute, implying that they do not deal in contaminated property; (2) high, where lending occurs but land would be subject to detailed audits, accompanied by warranties and indemnities; (3) low stance, that is to carry out basic surveys and rely on what insurance is available; (4) ignore the issue completely. Nevard’s[29] research also reveals that “when seeking finance, it is now a requirement to produce evidence that the site is clean or the extent of contamination present”.

Contractors
In their simplest form of operation, i.e. contracting, construction companies interpret the designer’s specification in buildings by following set guidelines. In this capacity, the contractor is the producer for the client, who could be a developer of a kind. Therefore, the contractors’ role in determining the environmental standards of buildings is negligible as these are set by the client’s design team. The contractor makes his profit through production of buildings[38]. The relationship

Environmental regulations and the real estate industry

Property Management Volume 14 · Number 1 · 1996 · 6–23

A.R. Ghanbari Parsa and M. Akhavan Farshchi

between contractors, designers and developers in the UK has been developed into an institutionalized system of contracting. The contracting system is a complex process in which contractors compete for construction work through tendering. With profit maximization as the ultimate goal, the contractors operate according to market forces. Contractors bear some responsibility in the conduct of their work through minimization of contamination, waste management and the impact of construction work on the local community. In reacting to increased environmental pressure, the industry’s response has been to pass the burden of responsibility to the next agent in the production system and ultimately to the client. The client’s role is particularly vital: by injecting capital they influence the physical and aesthetic form of the product, i.e. building. Although there are some differences between private and public sector clients, they ultimately work according to the same criteria within a capitalist economy. Public sector clients as government departments/agencies or local authorities have some measure of control or obligation in their capacity as legislators. There are different methods by which the industry is pressurized to take environmental issues into consideration. These are by legislative pressure, policy initiatives and economic instruments. In the context of the UK, environmental legislation is influenced directly by EC legislation. The construction industry has tended to be reactive rather than proactive visà-vis pressures or changing conditions within or outside the industry.

because of their historical status and the tradition of the landed class, have a formidable influence over the formulation of policy affecting landed property. This was illustrated when the RICS successfully lobbied against the introduction of a register of contaminated land in the UK in 1993. Furthermore, it has published guidelines for valuing contaminated land and property, advocating that surveyors include an appropriate caveat and yield adjustment. The 1995 RICS framework document “Land contamination guidance for Chartered Surveyors”, in a warning to its members, encourages surveyors “to take a lead in tackling the market’s lack of understanding and uncertainty over polluted land but stresses that members should limit advice to areas of their own competence and professional indemnity”[39]. The valuation of contaminated land has proved particularly difficult in the past few years. Surveyors require new skills and training in order to understand the complexities of the environmental implications for their clients.

Occupiers
A recent position paper by developer Stanhope Properties[40] in the UK claimed that occupiers are paying too much for buildings. In this position paper, Stanhope encourages more debate on efficiency, cost and quality in buildings in order to achieve greater understanding of performance measurement. According to Stanhope’s director, responsible for construction and operation, occupiers overpay either directly or indirectly through costs passed on to them in rent. Another report[41] reveals that occupiers are not satisfied with services such as cleaning and maintenance. The survey shows that in the present economic climate, occupiers are beginning to take a very hard look at the running costs of their properties. In essence they are looking for properties which are economical and easy to run. Research shows that many occupiers would be quite willing to pay more if these requirements were met. The report concludes that “the development industry has been lulled into a false sense of security through a succession of boom years in which demand has often outstripped the supply by a considerable margin”. A 1992 research project carried out at South Bank University[15] asserted that property occupiers appear to be more concerned about 15

Real estate agents
Real estate agents play a vital role in the real estate market. The impact of their action on the environment in the development process could be evaluated in terms of their advice on valuation, investment, location, property type, specification and ultimately maintenance and day-to-day management of the property. Developers and investors will not be able to work without close liaison with their real estate agents for disposal or management of their property holdings. In the UK, the professional regulating body for real estate agents is the Royal Institution of Chartered Surveyors (RICS), which has direct influence over the education and training of its members. The real estate industry and the RICS,

Environmental regulations and the real estate industry

Property Management Volume 14 · Number 1 · 1996 · 6–23

A.R. Ghanbari Parsa and M. Akhavan Farshchi

environmental issues than investors and/or developers. It was revealed that 73 per cent of corporate occupiers, as against 53 per cent of investors/developers, had an environmental policy. It was further confirmed that the most significant factor for investors, developers and occupiers was corporate image. Buildings generally lasting for long periods of time require careful planning at the design stage. Once the appropriate building and components have been specified, constructed and installed, future costs can be drastically reduced; some of these costs can be seen in terms of running costs which could be of the occupiers’ or users’ concern, while future maintenance costs could be of more interest to an investor. Planning and allowance in the design budget would ensure customer satisfaction. The corporate occupiers[15] are found to show a higher regard for environmental issue, especially in terms of their expectation of tougher legislation and protection against liabilities.

Regulatory pressure
Environmental legislation and a multitude of other statutes affect the construction and property industries through building and health and safety regulations, planning and development controls, including the requirement for Environmental Impact Assessment (EIA). In addition there are standards and voluntary codes which regulate the construction process and ward off legislation which may otherwise be imposed. However, many observers do not consider that the private sector on its own is capable of regulating itself. At the international level there is concern over the extent to which governments keep to their promises. Blowers[14] states that “so long as an individual country continues to gain from a polluting activity it will continue production regardless of the impact on the carrying capacity of the environment”. Environmental legislation in the UK is developing at an ever faster rate as a result of regulatory pressure from the EU. The Control of Pollution Act 1974 (COPA)[42] was the beginning of a new approach to environmental problems in the UK[23]. The regulatory frameworks for disposal of waste on land, pollution of water, noise disturbance and pollution of the atmosphere were all grouped under COPA. Although it supplemented the existing body of 16

law, it did not entirely replace the existing legislation. However, even after the Environmental Protection Act (EPA)[43] 1990, there is not still one single statute governing the environment as a whole. The EPA structure relating to construction is summarized as waste disposal licensing, duty of care with respect to waste, and statutory nuisances. Further, the Water Act 1989, consolidated with the Water Resources Act 1991, is also affecting the construction and related industries in the UK. The EU legislation in the form of directives and regulations has begun to put pressure on both the construction industry and the development process. For example, the Construction Products Directive implemented in the UK by a 1991 regulation includes within its scope “energy economy and heat retention”[24]. The fundamental issues of the environmental debate concentrate on the economic viability of the concept of sustainable development. Limited growth rate and reduced industry competitiveness in one country as compared with others, both within the EU and globally, is a vivid example of this. At the European level, the lack of a level playing field heightens the debate. The need to safeguard the environment for the future generations is a well documented fact of life. National and European legislation combined with international treaties have already made a significant impact on the way different industries within the European Community function. For example, the Montreal Protocol has set a target for 75 per cent reduction of CFCs by 1 January 1995 in Europe. On the legislation front there will be increased pressure on the EU governments for tougher action to encourage environmentally benign practice. In the USA, Vice-President, Al Gore, stated that the integrity of the environment is not just another issue to be used in political games for popularity votes or attention. The time has long since come to take more political risks – and endure much more political criticism by proposing tougher, more effective solutions and fighting for their enactment. In the European context, the Fifth Action Programme “Towards sustainability”[44] sets out longterm objectives and performance targets to be achieved by the year 2000; industry, energy and transport are specifically targeted. The EC directives form a major source of pressure for environmental improvement. To date, there are over 300 legally binding measures in

Environmental regulations and the real estate industry

Property Management Volume 14 · Number 1 · 1996 · 6–23

A.R. Ghanbari Parsa and M. Akhavan Farshchi

the EU with at least 40 under debate. The Appendix lists a number of major pieces of legislation introduced by the European Parliament in recent years. The majority of these have been designed to set common standards for environmental quality and to eliminate distortions within the Single Market. There are also a number of voluntary schemes including the Eco-Labelling and Eco-Audit Schemes. It should be noted that the ecolabelling scheme was adopted as a regulation within the community in March 1993. Market instruments are also making an impact on the environmental performance of the industry. For example, as discussed earlier, a number of banks within the UK do not finance developments without prior environmental assessment to minimize future liabilities regarding contaminated land.

Searching for the appropriate response
The real estate market is one of the least efficient markets. This is due to a number of factors: imperfect market knowledge of buyers/sellers; immobility and uniqueness of each development or site; illiquidity of investment asset, and the long construction process. Consequently, the market has been slow in adjusting to changes in demand. In the UK context at least, the market has no central buying and selling place, but instead consists of a number of parties dealing with heterogeneous sites[29]. As demonstrated in the previous sections, there is increased regulatory pressure with specific effect on the real

estate market, the most important pressure being the legal liability for investors and creditors of real estate development extending beyond the corporate liability. Corporate directors and business managers are increasingly held liable for their actions. Betterinformed business leaders recognize that the green consumer is simply the visible part of a green iceberg[17, p. 18]. Some even consider that environmental threats will be equalling business opportunities. In order to avoid legal liability and to take advantage of the potentials offered by the green opportunities, the real estate professionals will need to take a strategic view of their actions. The potential corporate liability of investors, developers and other actors has already been discussed and the dangers outlined. The search for an alternative response would require a rethinking of the existing market practices. Chambers and Roehr[45] provide a conceptual framework on how environmental contamination affects the value of landed property (see Figure 5). Within this framework, four stages have been identified where appropriate action can be implemented. The first step is to identify the nature of the problem; then to evaluate the extent and type of the problem. The appropriate response in terms of financial implication for any remediation or the necessary alternative indemnity action is determined at the third stage. Following this procedure a decision can be made as to whether to utilize or market the property under question with a predetermined value.

Figure 5 Conceptual framework – how environmental contamination affects value Nature of the problem
Physical contamination –Dioxin –Radon –Heavy metals –Other

Evaluation of the problem
Perception – Aesthetics – Attitudes – Values

Response alternatives

Value consequences

Usability

Toxicity Persistence Flammability Friability

Financing effects Remediation alternatives Indemnification alternatives Regulatory environment – Federal – State – Local

Value

Non-physical contamination – Visual – Odour – Noise – Other

Marketability

Source: [45]

17

Environmental regulations and the real estate industry

Property Management Volume 14 · Number 1 · 1996 · 6–23

A.R. Ghanbari Parsa and M. Akhavan Farshchi

With the increased legislatory environmental pressure in the UK and EC, the property market is likely to be pressed to take account of future legislation. It is evident that these will exert influence on current land use planning and transportation policies, and will change the balance of town retail development in favour of town centres as against out-of-town retail development: for example, the new European Directive Natura 2000 “will apply even more stringent rules to development near protected habitats for flora and fauna”[46]. Social pressure translated into consumer choice reflected in demand for higher quality, built environment products in the form of better and more accessible office, commercial, residential and leisure space, together with intensified market competition, could encourage the supply of such buildings in the long run. Global climatic change on the local scale would translate into risks of increased flooding or decreased rainfall, each having a major impact on building conditions. This may result in higher insurance claims for flood damage and subsidence. Industrial contamination, as indicated by the crippling asbestos claims, will further add to the burden of insurance companies. Risk of contamination from urban and rural industrial land will require special consideration in terms of insurance, finance and credit arrangement. Appraisal of such landed property will require a re-examination of existing professional skills and development of new scientific and technical methods of valuation.

Conclusion
This article has explained the implications for increased environmental issues for the real estate industry. It has outlined different ways in which environmental issues arise from real estate development and the resulting consequences. In the light of environmental debate and its impact on the real estate industry there is a need for a new approach to research and analysis. There is an increased sense of urgency owing to the nature and complexity of the development process. As outlined in Figure 1, the development process involves the sum of activities of a number of actors including financiers/investors, developers, property agents, designers, and contractors. In this chain of activity, each party carries its own share of responsibility in achieving environmental objectives. It is this close 18

relationship which requires particular scrutiny as, otherwise, this responsibility could potentially be attributed to the next actor in the chain of production. The real estate industry plays a vital role in the UK and in the global economy in terms of employment generation, fixed capital formation and its associated industries. The impacts of real estate development extend beyond its economic role. The physical and aesthetic impacts of buildings have a direct effect on the cultural basis of our cities and ultimately our society. As far as the real estate industry is concerned, sustainability will mean a new approach to the way buildings are planned, designed, specified and constructed. This embraces the ambiguity of the roles of the professionals, client, government and regulatory bodies, etc. The industry’s dilemmas relating to the introduction of new regulatory frameworks and standards are numerous. The most significant issue is that relating to uncertainty and continuity. In order to devise an effective plan of action for environmental performance the industry will need to establish what, why and how this should be done, which measures would be the most effective while popular, and what mechanism should be used for its enforcement. Not only is the complexity of the real estate development process alone a problem in itself, but the diversity of the activities, and the number of people involved, makes the task of setting new targets a challenge. Our first step towards this understanding is derived from positioning the role of the real estate firms and their relationship with other professionals and other players in the development process. The role of real estate firms in transforming the input (land, labour and materials) into a form of built environment, should not be studied in isolation, since this process is part of the capital accumulation process which involves many more than just the real estate professionals. The changing roles of the professionals in the last decade as well as drastic changes in the balance of public and private sector output have exacerbated the difficulty of encouraging and enforcing an environmentally-benign strategy. Real estate development is an example for an industry which could be required to meet certain environmental targets, for example the reduction of carbon dioxide emissions from buildings, or the recycling of building materials, but not by setting standards which apply uniformly to each development project.

Environmental regulations and the real estate industry

Property Management Volume 14 · Number 1 · 1996 · 6–23

A.R. Ghanbari Parsa and M. Akhavan Farshchi

Rather, the use of environmental levies or licences, aimed at achieving aggregate targets for all construction and refurbishment activity, may be more appropriate. It is encouraging that there is an increasing recognition that many commercial buildings can be designed more efficiently by simply taking account of principles of natural ventilation and solar gain planned at the design stage. All the signs indicate that a prompt response by the industry could reduce the risk of further regulatory measures imposed by national governments. However, there remains a tension on the adoption of particular approaches as shown by different empirical and theoretical research. The fundamental question facing the academic community and policy-making circles is to find practical measures to address the greening of the real estate market. As Rydin[47] suggests, this relates to the tension between an emphasis on structures of marketbased provision and development processes tending to result in technocratic or top-down policy recommendations.

11 Healey, P. and Barret, S., “Structure and agency in land and property development processes: some ideas for research”, Urban Studies, Vol. 27, 1990, pp. 89-104. 12 Department of the Environment, This Common Inheritance, summary of the White Paper on the Environment, HMSO, London, 1990. 13 Wilson, A., “Materials alternatives”, Architecture, May 1991, pp. 113-18. 14 Ghanbari Parsa, A.R. and Akhavan Farshchi, M., “Impact of EC environmental legislation on the UK construction industry”, paper presented at CIRIA Construction and the Environment Seminar, Links between Industry and the Academic Community, January 1994. 15 Parsa, A.R., “The impact of environmental issues on commercial property”, working paper, School of Land Management and Urban Policy, South Bank University, London, 1992. 16 Smith, P.F., “Notes on the question of a sustainable future – an introductory document”, University of Sheffield, Sheffield, 1994. 17 Elkington, J., Knight, P. and Hailer, J., The Green Business Guide. How to Take up – and Profit from – the Environmental Challenge, Victor Gollancz, London, 1992. 18 Grove, R., ”The origins of environmentalism”, Nature, Vol. 345, 3 May 1990, pp. 11-4 cited in [4]. 19 Construction Industry Research and Information Association, Construction Industry Environmental Forum, Bulletin No. 7, London, 1993. 20 Royal Institution of Chartered Surveyors, Draft Chapters for the Manual of Valuation Guidance Note, 1993. 21 Rydin, Y., “Environmental impacts and the property market”, in Breheny, M.J. (Ed.), Sustainable Development and Urban Form, Pion, London, 1992, pp. 21741. 22 Turner, N., “Environmental management systems and their use as a risk reduction strategy in property investment”, paper presented at the RICS Cutting Edge Conference, 2-3 September 1994. 23 Building Research Establishment, “BREEAM Environmental Assessment Report”, version 1/90 for New Office Buildings, 1990. 24 Construction Industry Research and Information Association (CIRIA), Environmental Issues in Construction – A Review of Issues and Initiatives Relevant to the Building, Construction and Related Industries, Vol. 2, Technical Review, CIRIA Special Publication 94, London, 1993. 25 Cooper, I., “Mapping the construction industry’s response to green issues: the UK as a suitable case for close scrutiny”, in Cole, R.J. (Ed.), Buildings and Environment, proceedings of a one-day Forum held at the University of British Columbia, Vancouver, March 1991, p. 1. 26 Lorch, R., “Construction materials and the environment – preparing for stricter building product standards”, Special report No. 2039, Economist Intelligence Unit, London, 1990, p. 2. 27 Housing and Construction Statistics, Quarterly, HMSO, London, 1990.

References
1 The Independent, 2 March 1994. 2 Lees, A., “Overview of environmental issues facing the property industry”, paper presented at the SPREE/RICS Research Seminars, 1992. 3 Buttel, F.H., Hawkins, A.P. and Power, A.G., “From limits to growth to global change: constraints and contradictions in the evolution of environmental science and ideology”, Global Environmental Change, Vol. 1, 1990, pp. 57-66, cited in [4]. 4 Blowers, A., “Environmental policy: the quest for sustainable development”, Urban Studies, Vol. 30 Nos. 4/5, 1993, pp. 775-96. 5 Ambrose, P., “Changing planning relations”, in Cloke, P. (Ed.) Policy Change in Thatcher’s Britain, Pergamon, London, 1992, pp. 97-122. 6 Environmental Data Services, Report (176), September 1989. 7 Organization for Economic Co-operation and Development (OECD), The State of the Environment, OECD, Paris, 1991. 8 Lovell White Durrant, “UK Government response to the Commission’s Green Paper on Remedying Environmental Damage”, November, 1993. 9 Bruntland (Chmn), Our Common Future, report by the World Commission on Environment and Development (WCED), Oxford, 1907. 10 Rydin, Y., “Environmental issues and the property market”, unpublished preliminary report on the findings of the sustainable residential development project, May 1991.

19

Environmental regulations and the real estate industry

Property Management Volume 14 · Number 1 · 1996 · 6–23

A.R. Ghanbari Parsa and M. Akhavan Farshchi

28 Department of the Environment, The UK Environment, HMSO, London, 1992. 29 Nevard, S., “The impact of contaminated land on the property market, value and valuation methods”, unpublished MSc dissertation, School of Land Management and Urban Policy, South Bank University, London, 1993. 30 Fraser, W.D., Principles of Property Investment and Pricing, Macmillan, London, 1993, p. 284. 31 Baum, A.E. and Crosby, N., Property Investment Appraisal, Routledge, London, 1989. 32 Hillier Parker, Results of the Industry Survey on the Impact of Environmental Issues on Asset Value, London, 1993. 33 Brown, G.R., “Reducing the dispersion of returns in UK real estate portfolios”, Journal of Valuation, Vol. 6, 1988, pp. 127-47. 34 DTZ, Money into Property, 1992. 35 Water Resources Act, HMSO, London, 1991. 36 Walsh, S., “Who will lend on contaminated land and for what purpose?”, presentation at the Third Annual Henry Stewart Conference on Making Profits from the Purchase, Clean-up and Sale of Contaminated Land, 29 January 1993. 37 Mortished, C., “Contaminated collateral”, Estate Times, 28 March 1992. 38 Ball, M., Rebuilding Construction – Economic Change in the British Construction Industry, Routledge, London, 1988. 39 Estate Times, “RICS takes on polluted land”, 10 February 1995. 40 Architects Journal, “Stanhope claims occupiers are paying too much for buildings”, 11 August 1993. 41 Vail William, “The occupier’s view – business space in the 1990s”, London, 1990. 42 Control of Pollution Act, HMSO, London, 1974. 43 Environmental Protection Act, HMSO, London, 1990. 44 Commission of the European Communities, Towards Sustainability: A European Community Programme of Policy and Action in Relation to the Environment and Sustainable Developments, Brussels, March 1992. 45 Chambers, J.A. and Roehr, S.A., “Issues in the valuation of contaminated property”, The Appraisal Journal, January 1993. 46 Hall, B., “Europe’s environmental law set to cause bigger headache”, Property Week, 1995. 47 Rydin, Y., “The greening of the housing market”, in Bhatti, M., Brooke, J. and Gibson, M. (Eds), Housing and the Environment. A New Agenda, Chartered Institute of Housing, London.

Appendix
(1) Planning, land use and conservation: • UK legislation – Town and Country Planning Act 1990. – Planning (Listed Buildings and Conservation Areas) Act 1990.

– Planning (Hazardous Substances) Act 1990. – Planning and Compensation Act 1991. – Wildlife and Countryside Act 1981. – Wildlife and Countryside (Amendment) Act 1985. – Town and Country Planning (Use Classes) Order 1987. – Town and Country General Development Order 1988. – Town and Country Planning (Assessment of Environmental Effects) Regulations 1988 (and other related regulations). – Derelict Land Act 1982. – National Parks and Access to the Countryside Act 1949. • EC legislation: – Directive 85/337/EEC on the assessment of the effect of certain public and private projects on the environment. – Directive 79/409/EEC on the conservation of wild birds (as amended). – Draft directive on the protection of habitats and wild flora and fauna. – Commission Regulation in improving the efficiency of agricultural structures (Regulation 797/85 – enables designation on environmentally sensitive areas pursuant on the Agricultural Act 1986). • Formal guidance on legislation: – DoE Circular 15/88 – Environmental Assessment. – DoE Circular 27/87 – Nature Conservation. – DoE Circular 1/85 – Conditions. – DoE Circular 16/91 – Listed Buildings. – DoE Publication entitled Environmental Assessment – A Guide to the Procedures. – Planning Policy Guidance Notes 1-18. – Minerals Planning Guidance Notes 1-8. – Convention under Conservation of European Wildlife and Natural Habitat (Berne Convention – 82/72 EEC). – The Convention on Wet Lands of International Importance especially waterfowl habitats: 1971 (RAMSAR Convention). (2) Human health: • UK legislation: – Health and Safety at Work Act 1974. – Factories Act 1961. – Construction Regulation 1961-66. – Control of Substance Hazardous to Health Regulations 1988. – Noise at Work Regulations 1989. – Control of Asbestos at Work Regulations 1987. – Control of Lead at Work Regulations 1980.

20

Environmental regulations and the real estate industry

Property Management Volume 14 · Number 1 · 1996 · 6–23

A.R. Ghanbari Parsa and M. Akhavan Farshchi

– Ionising Radiation Regulations 1985. • EC legislation: – Directive 89/391/EEC on Measures to Encourage Improvements in Safety and Health of Workers. – Directives 80/1107/EEC on Protection of Workers against Risks Connected with Exposure to Chemicals and Biological and physical Agents at Work. – Directive 83/477/EEC on Exposure to Asbestos at Work. – Directive 86/188/EEC on Exposure to Noise at Work. – Proposed Directive on Mobile or Temporary Construction Sites (COM(90)275 final). • Formal guidance on legislation: – COSHH Approved Codes of Practice. – Ionising Radiation’s Approved Code of Practice. – “Protection of Workers and the General Public during the Development of Contaminated Land” (HSE Guidance Note). – “The Control of Substances Hazardous to Health in the Construction Industry” (HSE Guidance Note). (3) Indoor air quality: • UK legislation – Environmental Protection Act 1990. – Housing Act 1985 (as amended by Local Government and Housing Act 1989). – Health and Safety at Work Act 1974 (ss2-4). – Factories Act 1961 (ss3,5,6,8). – Offices Shops & Railways Premises Act 1967 (ss.6,7). – COSHH Regulations 1988. – Building Regulations 1991. • EC legislation – Workplace Directive (89/654/EEC). – Directive 80/1107/EEC on Protection of Workers against Risks Connected with Exposure to Chemicals, Biological and Physical Agents at Work. – Carcinogens at Work Directives (90/394/EEC). – Visual Display Equipment Directive (90/270/EEC). • Formal guidance on legislation – Approved Code of Practice, COSHH. – Approved Documents, Building Regulations. (4) Sick building syndrome: • UK legislation – Health and Safety at Work Act 1974 (ss2-4). – Offices Shops & Railways Premises Act (ss7,8).

– Factories Act 1961 (ss3,4,5,6,8). – COSHH Regulations 1988. – Notices at Work Regulations 1989. – Building Regulations 1985. • EC legislation: – Workplace Directives (89/654/EEC) – Construction Products Directive (89/106/EEC). – Directive 86/188/EEC on Protection of Workers against Risks to Their Hearing and Health and Safety. (5) Radon: • UK legislation: – Building Regulations 1991. – Ionising Radiations Regulations 1985. • EC legislation: – Commission Recommendation of 21.02.90 on the Protection of the Public against Indoor Exposure to Radon – (not mandatory). • Formal guidance on legislation: – Approved Document C to the Building Regulations (revisions imminent). – Approved Code of Practice – Part 3: Exposure to Radon (1988) (guidance on Ionising Radiation Regulations 1985). (6) Legionnaires’ disease: • UK legislation – Health and Safety at Work Act 1974. – Control of Substances Hazardous to Health Regulations 1988. • Formal guidance on legislation: – Health and Safety Commission Approved. Code of Practice – The Prevention or Control of Legionellosis (including legionnaires’ disease). – Health and Safety Executive: HS(G)70 – The Control of Legionellosis including legionnaires’ disease. (7) Construction products: • UK legislation: – Health and Safety at Work etc. Act 1974. – Consumer Protection Act 1987. – Building Act 1984. – Environmental Protection Act 1990. – Construction Products Regulations 1991. – Control of Substances Hazardous to Health Regulations 1988. – Building Regulations 1991. – Classification, Packaging and Labelling of Dangerous Substances Regulations 1982 (as amended). – Control of Pollution (Supply and Use) Regulations 1986. – Asbestos Products (Safety) Regulations 1985 (as amended).

21

Environmental regulations and the real estate industry

Property Management Volume 14 · Number 1 · 1996 · 6–23

A.R. Ghanbari Parsa and M. Akhavan Farshchi

– Asbestos (Prohibitions) Regulations 1985 (as amended). – Environmental Protection (Controls on Injurious Substances) Regulations 1992. • EC legislation: – Construction Products Directive (89/106/EEC). – Dangerous Substances Directive (67/548/EEC) (as amended). – Dangerous Preparations Directive (88/379/EEC). – Directive 91/115/EEC on Specific Information Relating to Dangerous Preparations. – Directive 76/769/EEC on Marketing and Use of Dangerous Substances and Preparations. – Directives 84/291/EEC on Pesticides. (8) Contaminated land: • UK legislation: – Environmental Protection Act 1990. – Control of Pollution Act 1974. – Planning and Hazardous Substances Act 1990. – Town and Country Planning Act 1990. – Control of Pollution (Special Waste) Regulations 1980. – Derelict Land Act 1982. – Water Resources Act 1991. – Occupiers Liability Act. – Health and Safety at Work Act 1974. – Control of Substances Hazardous to Health Regulations 1988. – Radioactive Substances Act 1960. • EC legislation: – Draft Directive on Civil liabilities for damage caused by waste (COM(91)219 final). – Draft Landfill Directive (COM(91)102). – EC Green Paper on Civil Liability. • Formal guidance on legislation: – DoE Circular 21/87 – Development of Contaminated Land. – DoE Circular – Landfill Sites: Development Control. (9) Site noise: • UK legislation: – Control of Pollution Act 1974. – Environmental Protection Act 1990. – Control of Pollution (Codes of Practice for Construction and Open Sites) Orders 1984 and 1987. – Noise at Work Regulations 1989. – Construction Plant and Equipment (Harmonisation of Noise Emission Standards) Regulations 1985 and 1988.

• EC legislation: – Directives on Construction Plant and Equipment (79/113/EEC, 84/532/EEC, 84/533/EEC, 84/534/EEC, 84/535/EEC, 84/536/EEC, 86/537/EEC, 84/537/EEC. • Formal guidance on legislation: – Approved Code of Practice, Noise Control: BS 5228. (10) Air pollution: • UK legislation: – Environmental Protection Act 1990. – Clean Air Acts 1956 and 1968. – Air Quality Standards Regulations 1989. – Control of Asbestos in Air Regulations 1990. • EC legislation: – Directive 80/779/EEC on Air Quality. – Limit Value for Sulphur Dioxide and Suspended Particulates. – Directive 82/884/EEC on a Limit Value for Lead in the Air. – Directive on 05/203/EEC on Air Quality. – Standards for Nitrogen Dioxides Directive 87/217/EEC. (11) Contamination of water: • UK legislation: – Water Industry Act 1991. – Water Resources Act 1991. • EC legislation: – Directive 76/464/EEC on Pollution caused by the discharge of certain dangerous substances into the aquatic environment. – Directive 80/68/EEC on the Protection of groundwater against pollution caused by certain dangerous substances. – Directive 91/271/EEC on urban waste water treatment. (12) UK legislation: • Noise and Statutory Nuisance Act 1993. • The Furniture and Furnishings (Fire) (Safety) Regulations 1988 and 1993. • Transport and Works Act 1992. • The Occupiers Liability Act 1957. • Defective Premises Act 1972. (13) Formal guidance on legislation: • New Transportation and Planning Guidance – PPG13: – to reduce growth in the length and number of motorised journeys; – to encourage alternative means of travel which have less environmental impact; and hence – to reduce reliance on the private car. • Consultation paper on “Paying for our past”, 8 March 1994: – paying for putting right environmental damage;

22

Environmental regulations and the real estate industry

Property Management Volume 14 · Number 1 · 1996 · 6–23

A.R. Ghanbari Parsa and M. Akhavan Farshchi

•

•

• •

– to make it as difficult as possible to evade responsibility through corporate or contractual devices liability of lenders and financial institutions; – extension of strict liability. Construction (Design and Management) Regulations Act 1994: – to ensure health and safety throughout a project’s life by designers, property owners and developers. Planning Policy Guidance Note 23 – Planning and Pollution Control – material considerations to be taken into account when deciding grant of development permission: – location; – impact on amenity; – risk and impact of potential pollution and its effect on other land uses; – nuisance; – impact on transport networks and the surrounding environment; – need and feasibility of restoration of the site to an appropriate after use. Planning Policy Guidance (PPG)9 on Nature Conservation, October 1994. Planning and Policy Guidance (PPG)15 New guidance on Planning and the Historic Environment.

• Framework for Contaminated Land for establishment of the Environment Agency for England and Wales (to encompass the functions of Her Majesty’s Inspectorate of Pollution, the National Rivers Authority and Waste Regulation Authorities): – A “suitable for use” approach. – New duties and powers (s78A to s78P). – “Contaminated land” defined (s78A(2)). – Duties to inspect (s78A(8)). – “Remidiation notices” (s78D(1)). – etc. (14) 1994 Autumn Budget – “Landfill levy” charged from on waste disposal in landfill sites. (15) EC Framework Directive on Waste. (16) Building Regulations: • Waste and Management Regulations 1994. • New Building Regulations [Building Regulations (Amendment) Regulations 1994 SI No. 1850] – into force in July 1995. Particular areas to change are Parts F and L brought forward as part of the Government’s commitment to reduce energy consumption and so reduce CO2 emissions and to improve building ventilation. Source: [24].

23