Land purchase and site risk

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Description (What is the Risk)

The risk of acquiring title to the land to be used for a project, the selection of that site and the geophysical conditions of that site.
Planning permission.
Access rights.
Security.
Heritage.
Archaeological.
Pollution.
Latent defects.

Risk Allocation (Who typically bears the risk)

Allocation: Public Private Shared
Rationale

The Contracting Authority bears the principal risk as it is best placed to select and acquire the required land interests for the project.

The Contracting Authority would generally be responsible for providing a 'clean' site, with no restrictive land title issues, and existing utilities and contamination either dealt with or fully surveyed and warranted. Existing assets proposed to be used in the project should also be fully surveyed and warranted. The Private Partner may take some risk for dealing with adverse conditions revealed by surveys but other unforeseeable ground risks (e.g. archaeological risks) are likely to be held by the Contracting Authority.

The Contracting Authority should also consider the impact that the project will have on neighbouring properties and trades and may need to retain this risk of unavoidable interference.

That said, there may be some areas where risk will be shared with the Private Partner. Whilst the Contracting Authority may be able to secure the project site, the location suitability may be dependent on the Private Partner's design solution (such as availability of water and power required for the proposed waste treatment process).

Mitigation Measures (What can be done to minimize the risk)

The Contracting Authority should undertake detailed ground, environmental and social assessments and should disclose such information to the Private Partner as part of the bidding process.

The Contracting Authority should, to the greatest extent possible, ensure that it has a complete understanding of the risks involved in securing the site and the site constraints that will impact on the construction and operation of the facility.

The Contracting Authority should also manage any indigenous land rights issues that may impact on the use of the site.

Prior to awarding the concession the Contracting Authority could (through legislation and a proper consultation process) limit the ability for potential land right owners or neighbouring properties and trades to raise claims on the land and/or for injurious affection.

Government Support Arrangements (What other government measures may be needed to be taken)

The Contracting Authority may need to use its legislative powers to secure the site (e.g. through expropriation / compulsory acquisition).

Even where you have a legally clear site, Government enforcement powers may be needed to properly secure the site for the private sector. There may be historic encroachment issues that the Private Partner cannot be expected to deal with.

Comparison with Emerging Market

Land rights and ground conditions in developed markets are typically more established and risks can be mitigated with appropriate due diligence with relevant land registries and utility records.

The Private Partner's obligations with regards to indigenous rights are generally well legislated in developed markets, for example requirement to enter into indigenous land use agreements under native title legislation in Australia and the equivalent under first nations law in Canada.

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