In the next in my series of blogs on climate change and its potential forward impact on property transactions, I turn now to perhaps THE critical question. Do property lawyers and conveyancers need to consider climate in the transaction above standard environmental risk data. And given that climate data is now available, some of the risks if they don’t at least point to it as part of the Report on Title.
Climate change is already impacting the UK’s land and buildings, making our wetter months even wetter and our drier months even drier. This puts millions of UK properties at serious risk of subsidence from drier conditions and at increased risk of flooding from wetter conditions.
We only have to look at – and think hard about – the numbers of UK properties predicted to be at risk from our rapidly changing climate. Groundsure, the UK’s leading environmental data authority, have provided this window on the future:
|NUMBER OF HOMES AT RISK||SHORT TERM||2050||2070|
FLOODING FROM SURFACE WATER
2. Lenders and Insurers
In May 2022 the Bank of England completed a ‘climate stress test’ on the UK’s leading banks and insurers. If they fail to manage climate risk they face the risk of very significant financial impacts by 2050:
- Banks – up to £225bn in credit losses.
- Insurers – 8-15 % decrease in asset value. Up to 7% of UK homes uninsurable for flood risk.
Lenders are already developing processes and procedures to reduce their climate exposure, e.g. screening UK homes for long-term climate risk to see if they wish to provide mortgages. As Rob Stevens, Head of Property Risk at Nationwide Building Society, says ‘climate risk is the biggest challenge facing lenders over the next 10-15 years’. (1)
For Insurers, climate risk is both a long term risk to insurer solvency and a huge opportunity for insurers and other capital providers to bring new climate risk transfer products to the market.
Lenders and insurers (property insurers and PI insurers) will inevitably exert influence on property lawyers to ensure that these risks are considered during the conveyancing process. This opens up the question as to whether property (and other) lawyers owe their clients a duty to advise them about climate risk.
3. The Case for The Duty to Advise Clients about Climate Risk
There is no reported case of a solicitor being found negligent for failing to advise a homeowner, property developer or lender about climate risk. It does NOT follow that solicitors do not have a climate duty of care.
The three factors that judges evaluate when deciding if a duty of care exists were set out by Lord Steyn in The Nicholas H case:
- Close proximity in the relationship between the plaintiff and the defendant (e.g., between a homeowner whose property has been destroyed by coastal erosion speeded up by climate change and the property lawyer who did not warn about this risk).
- Reasonable foreseeability that damage would be caused as a result of the defendant’s carelessness.
- Introducing the duty of care on the part of the defendant has to be ‘fair, just and reasonable’. (2)
Applying these tests to climate risk, we can see that the close proximity of the relationship between a lawyer and the client is self-evident.
Proving causation is often challenging. However, the latest climate risk data shows predicted climate impacts on specific, individual properties in an easy to understand format – e.g., Groundsure’s Climate Index. Using this data, it can be argued that but for rapidly increasing global temperatures brought about by greenhouse gas emissions, the physical impacts to a particular property (e.g., subsidence, coastal erosion, overheating of the building) would not have occurred.
Consequently, the main arguments as to whether or not a duty of care applies in respect of climate may rest on the ‘fair, just and reasonable’ test and the particular circumstances of the case. The following factors may be weighed in the balance when making this assessment:
Growing awareness of climate risk in the UK:
- June 1992 – Rio Earth Summit results in the UN Framework Convention on Climate Change.
- April 2019 – UK Government declares a climate emergency.
- 2015 – 2022 – warmest 7 years on record.
Likelihood and scale of climate risk:
- Overwhelming importance to society of addressing climate risk. Inconceivable that lawyers will be excused from playing their part in helping clients to mitigate climate risk.
- The predicted financial impacts on land and buildings are profound (see the above table and the Bank of England’s estimates).
- Risk of total loss of property value as a result of coastal erosion.
- Risk of significant loss of property value if homes and other buildings are flooded on multiple occasions.
- Risk of stranded assets as insurers restrict or remove cover over time for high risk properties and lender decline mortgage or re-mortgage applications.
Response of professional bodies and legal commentators:
- February 2020 (Revised July 2021) – Report on Title – Climate Change Clauses . “Where climate change risk searches are unavailable, standard climate change statements should be added to the report on title to make buyers aware of future risks that may affect the property.”
- October 2021 – the Law Society issues Climate Change Resolution. This resolves to: ‘provide guidance to solicitors on how, when approaching any matter arising in the course of legal practice, to take into account the likely impact of that matter upon the climate crisis…’.
- March 2022 – UCL Professor Sarah de Gay concludes ‘it is most likely’ that solicitors in England & Wales have a legal duty to advise clients about climate risk’.
- March 2022 and ongoing – Law Society’s Planning & Environment Committee starts work on drafting a Climate Risk Practice Note.
- June 2022 – Speaking at Groundsure’s 2022 Conveyancing Climate Change Conference, the UK’s most eminent environmental law barrister, Stephen Tromans QC, agrees with Professor de Gay’s conclusion.
Availability of tools to explain climate risk impacts on specific properties
- June 2022 – Groundsure launches ClimateIndex™ – a climate data module added to its standard environmental reports which gives an easy-to-understand, overall score for the effect of climate risk on a specific property over a 1, 5, and 30 year timeframe.
These considerations are likely to convince judges that it would be ‘fair, just and reasonable’ to extend the duty of care which lawyers owe to clients to include a duty to advise them about climate risk.
Property lawyers should proceed on the basis that they owe their clients a duty of care to advise them about climate risk and its legal implications.
Indeed, there is even an argument that this duty started some time ago, perhaps in 2019 when the UK Government declared a climate emergency – but clearly also when The Chancery Lane Project provided clauses for climate risk advice from 2020.
4. How do Solicitors discharge their duty to ADVISE clients about climate risk?
As a recent Court of Appeal about planning data shows, a non-negligent solicitor would have included within their Report on Title to their client:
“a summary of the purpose of the [climate risk data], followed by a summary of the results [of the data], coupled with a short description of what further information could be obtained if it was required and a request for instructions as to how the recipient of the [data] wished the solicitor concerned to proceed”. (3)
Property lawyers will note that simply commissioning data in an environmental report and forwarding it to the client without any explanation or commentary is insufficient to discharge the duty of care.
It is to be expected that the Law Society’s Climate Risk Practice Note will, in due course, set out the steps that solicitors should take when climate data identifies a property at significant risk of being impacted by climate risk, such as:
- Asking the client’s insurance broker whether as a result of predicted climate risk the property is likely to be uninsurable in the longer term for flooding, subsidence and other physical impacts.
- Asking a valuer to advise by how much the purchase price ought to be reduced (if at all) as a result of climate risks. Seeking to reduce the purchase price to reflect the long-term risk and impact on value.
- Purchasers of property in certain areas (e.g., coastal property protected from coastal flooding by sea walls) may seek more information about the amount of money that is spent to maintain the defences. Property lawyers may wish to advise their clients whether they can expect or require defences to be maintained by public bodies in the coming decades.
- In exceptional cases withdrawing from a property purchase because the climate risk is just too great to accept. No one wants to purchase a stranded asset such as a house which is threatened by coastal erosion, regular flooding and / or subsidence.
The risks to which UK land and buildings are exposed are increasing due to the climate crisis.
This will have real and significant repercussions for millions property owners across the UK over the next few decades as the climate impact models are showing.
Lawyers are not environmental or climate scientists, but that does not mean that clients should be left high and dry to draw their own conclusions about these risks.
There is a growing body of opinion that solicitors have a professional duty of care to advise clients about climate risk.
In light of this, prudent lawyers will follow the Law Society’s exhortation in its Climate Resolution 2021 to become better informed about climate risk and to make good use of climate data now that it is available.
Stephen Sykes, Solicitor, LL.B, MA Environmental Law,
Capital Law Limited
- Bold Legal Group Summer Conference, London, June 28th, 2022.
- See: Marc Rich & Co. A.G. v. Bishop Rock Marine Co. Ltd., also known as The Nicholas H.  3 All ER 307.