When you are acquiring housing (or other) land from a local authority it is not uncommon to find that the land you are buying is subject to rights in favour of third parties, such as rights of way, rights to use service media and shared amenity areas.  In particular, the land may be subject to a range of rights in favour of people who bought their homes under the Right to Buy (“RTB”). 

RTB owners may have been granted express rights (over the land you are buying) in their original lease or transfer. In addition, the Housing Acts grant RTB owners statutory rights to enjoy the same rights they enjoyed as secure tenants at the time they exercised the RTB. 

It is never a good idea to ignore such matters, as if you infringe a person’s right(s) when you develop a site, they can apply to the Court for an injunction to prevent you from carrying out the development or financial compensation for the loss of their enjoyment of those rights. 

Site visit

As a starting point we suggest that you carry out a site visit to see whether, for example, access ways or footpaths are actually being used.  This knowledge will help you establish the likelihood of any claims and whether they would be successful.  If there is time, the Council might agree to block up an access way and see if anyone complains. If they do complain, you might not be able to obtain insurance against this risk (see below), but nonetheless it is generally better to find out at the outset if there is likely to be a dispute or a claim.

Now what…?

You have the following options

(a)        do nothing, on the basis of a risk assessment

(b)        obtain insurance

(c)        obtain an indemnity from the Council

(d)        appropriate the rights under Section 237 of the Town and Country Planning Act 1990 (plus indemnity insurance)

Doing nothing

You could “take a view” and do nothing, on the basis you consider either that it is highly unlikely that RTB rights exist, or that even if they do exist it is highly unlikely anyone would seek to enforce them, e.g. because residents want the benefit of the regenerated estate.  You would have to make an assessment that the risk of action was minimal and the consequences manageable (even if the leaseholder obtained an injunction to prevent the development being carried out).  If you take the “do nothing” option you should consider including a contingency for a financial settlement in your business plan/financial model for the scheme.

Insurance

You can take out an insurance policy that will pay out in the event of a (successful) claim by a third party that you have infringed his or her rights. The policy will compensate you for financial losses suffered as a result of the claim.  It will not, however, extinguish the rights and so will not prevent an applicant from seeking, and possibly obtaining, an injunction to prevent the works being carried out.

If you take the insurance option you should factor in the cost of insurance in your financial model. However, our recent experience indicates that it can be difficult to obtain insurance on acceptable terms and that any insurance which is available can be costly and may not provide comprehensive cover.

Indemnity

You could ask the Council for an indemnity against any losses suffered as a result of any claims. Ideally, the indemnity would cover sums paid to affected persons as well as losses suffered due to an injunction.  However, in our experience, councils expect the buyer to bear all these risks. Again, an indemnity will not extinguish third party rights and so will not prevent someone from seeking/obtaining an injunction.

Appropriation under s237 

The Council can appropriate the property for planning purposes under s237 Town and Country Planning Act 1990.  Appropriation extinguishes and ‘converts’ existing rights into a claim for compensation (similar to a compulsory purchase).  Such claims will normally be assessed on a loss of amenity basis rather than on a ransom strip/or in lieu of an injunction basis.  Appropriation is the only option that removes the existing rights and, perhaps more importantly, the applicant’s right to seek/obtain an injunction.  Your sale/development agreement should therefore oblige the Council to undertake a formal appropriation.

The Council cannot appropriate rights enjoyed by statutory undertakers and any such rights will remain unaffected by a s237 appropriation.  Nor can s237 be used to extinguish public rights, such as rights to use public highways, common land, etc.

If all else fails...

If an individual’s rights are likely to be infringed, then you should consider making an offer to settle up front, not only because of the costs and risks of going to court but also because even if the leaseholder did not have a strong claim, you might want to avoid court proceedings because of the inevitable delay and because of relations with the Council and the community.

Obviously, each scheme is different.  This briefing is not intended to provide all the questions or all of the answers, but rather to flag up some of the more common problems and solutions when acquiring land from local authorities.

For more information on these issues please contact

Ben Halsey

or your usual Lewis Silkin contact