Land purchase and site risk

Toll Road Toll Road

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, hazardous materials.
Latent defects.
Easements, encroachments setback, etc.

Risk Allocation (Who typically bears the risk)

Allocation: Public Private Shared
Rationale

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

However, there may be some areas where risk will be shared with the Private Partner. While the Contracting Authority may be able to secure the availability of the corridor, the suitability of the corridor may be dependent on the Private Partner's design and construction plan.

The Contracting Authority would generally be responsible for providing a 'clean' site, with no restrictive land title issues, as well as resolving issues with existing utilities and contamination.

The Contracting Authority will normally hand over the site to the Private Partner in an 'as-is' condition. The Private Partner may take the risk for dealing with adverse conditions revealed by surveys regarding unforeseeable subsoil risks.

Where it is not possible to fully survey prior to award (eg in high density urban areas) risk will be allocated to Contracting Authority or shared.

The risk of artefacts may be shared where the Private Partner may bear the risk in respect of designated areas, and the Contracting Authority may bear the risks of findings outside such areas.

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. Such assessment should consider any easements and covenants, etc. that may encumber the land.

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 those that will affect the construction and operation of the toll road.

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

Prior to awarding the contract, the Contracting Authority could (through legislation and a proper consultation process) limit the ability of land owners or adjacent properties and trades to raise claims on the land.

The Contracting Authority should complete the process of land acquisition before the contract is awarded.

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 in the case of a legally clear site, the Contracting Authority may need to invoke Government enforcement powers to properly secure the site for the private sector. There may be historic encroachment issues that the Private Partner is not best positioned to resolve.

Examples include the relocation of people (e.g. the removal of informal housing or businesses) and continued efforts to manage the social and political impact of the project on and around the site including a compensation regime for affected properties adjacent to the road.

The Contracting Authority may be required to provide additional site security / assistance during operations to manage this risk

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, the requirement to enter into indigenous land use agreements under native title legislation in Australia and the equivalent under first nations law in Canada.

On the other hand the rights of private landowners against forced sales or expropriation might be stronger in developed markets, requiring more time to acquire the land.

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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, hazardous materials.
Latent defect
Easements, encroachments setback, etc

Risk Allocation (Who typically bears the risk)

Allocation: Public Private Shared
Rationale

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

However, there may be some areas where risk will be shared with the Private Partner. While the Contracting Authority may be able to secure the availability of the corridor, the suitability of the corridor may be dependent on the Private Partner's design and construction plan.

The Contracting Authority would generally be responsible for providing a 'clean' site, with no restrictive land title issues, as well as resolving issues with existing utilities and contamination. Existing assets proposed to be used in the project should also be fully surveyed and warranted. The Private Partner may take the risk relating to known adverse conditions but other unforeseeable ground risks (e.g. archaeological risks, unknown hazardous materials) will likely be borne by the Contracting Authority.

The Contracting Authority should also consider the impact that the project will have on adjacent properties and industries and may need to retain the risk of unavoidable interference with such parties.

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. Such assessment should consider any easements and covenants, etc. that may encumber the land.

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 those that will affect the construction and operation of the toll road.

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

Prior to awarding the contract, the Contracting Authority could (through legislation and a proper consultation process) limit the ability of land owners or adjacent properties and trades to raise claims on the land.

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 in the case of a legally clear site, the Contracting Authority may need to invoke Government enforcement powers to properly secure the site for the private sector. There may be historic encroachment issues that the Private Partner is not best positioned to resolve.

Examples include the relocation of people (e.g. the removal of informal housing or businesses) and continued efforts to manage the social and political impact of the project on and around the site.

The Contracting Authority may be required to provide additional site security / assistance during operations to manage this risk.

Comparison with Developed Market

Land rights and ground conditions (in particular reliable utilities records, and land charges) in emerging markets may be less certain than in developed markets where established land registries and utility records exist.

In the absence of legislation in emerging markets, indigenous land rights issues and community engagement can be managed by the Contracting Authority through the adoption of IFC Safeguards for the project, particularly in order to ensure international financing options are available to the project. See comments on 'Environmental and Social Risk' for a toll road project in emerging markets.

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