Counsel & Conversation | S1 E1: Agricultural Diversification | Swinburne Maddison

Caroline Smith  00:06

Welcome to Swinburne Maddison’s Counsel & Conversation, where our expert lawyers talk about everyday legal scenarios. I’m pleased to welcome today, David Low, who is a Partner here at Swinburne Maddison and heads up our Property Litigation department. Welcome David. I’m also pleased to welcome Victoria Walton, who is also a Partner and heads up our Commercial Property department. So, today we’re going to be talking about commercial property, particularly focusing on the agricultural area and how to avoid the pitfalls, which is where David will come in. So, I’ve got a scenario that I’m going to read out to you, and I’m probably going to look to you, Victoria, just to start off the conversation around this. So, a farmer is looking to diversify the use of their land. What legal steps must be taken?

Victoria Walton  00:58

I think that a good starting point is to check the title to the land, so that you know exactly what you’re dealing with and there are no surprises further down the line. The first thing that I would check is whether the land is registered at the land registry, but each piece of land that is registered at the land registry has a unique title number, and the names of the owners are on there, any rights that the land has, anything that the land is subject to, and any mortgages are all set out there. And I think that’s a really good thing for people to do in any situation, because there are benefits anyway. It can make anything that you want to do with the land in the future. So if you want to sell it or mortgage it, having it registered with the land registry can make the process simpler. It also proves ownership, so it can help avoid fraud. So I think that is a good step to take anyway.

Caroline Smith  01:50

So my thoughts on that, on why, why wouldn’t a farmer, why wouldn’t a landowner already have their land registered?

Victoria Walton  01:59

There are certain triggers that require somebody to register land at the land registry, and if a land hasn’t been subject to that trigger, so if the ownership hasn’t passed, then it hasn’t had to be registered. And we do often see that, particularly with farming land, where the land has remained in the family and ownership hasn’t passed, so it hasn’t had to be registered.

Caroline Smith  02:20

That’s really interesting about the title. So, have you come across those situations where somebody hasn’t registered the land?

Victoria Walton  02:27

Yeah, we often do come across unregistered land. And if there’s a problem, it’s when we are lucky enough to bring in the property litigation team. We bring them in as soon as we can to have a look at it to see what can be done about it.

David Low  02:40

Yes, unfortunately, it does come up quite a lot. Obviously, the whole purpose behind registration is to have everything recorded in one place so that everybody knows what the situation is with that piece of land. Unregistered land is becoming less and less common, but we’re still seeing it, as Victoria says, in agricultural settings, and that can become a complete nightmare, particularly if it’s not identified early on. To think of one example, recently, where we had a client who had quite a large estate, the assumption was all of the land belonged to them, it had been in the family for generations, but it wasn’t registered, and it wasn’t until much further down the line that actually a neighbouring landowner claimed ownership over a particular part of the land. Which, at the outset, our client thought was absolute nonsense, because it had just always been part of their estate. But actually, once it started going through a legal process. It turns out there’d been a historic conveyance where the plan had been wrong, and actually, the same piece of land had been transferred to two different parties. And essentially, since then, two different people thought that they owned it, and it became a complete mess, because, of course, within those two sets of ownerships, everybody thought they were in the right position, and we ended up, unfortunately, in that case, having to go through a fully blown property tribunal case through to trial, for a judge to actually determine who owned the land. So that’s quite an extreme example, but it’s an example where not identifying something very early on and getting it sorted. As Victoria says, there are trigger events when you have to register land, but you can also do a voluntary first registration to get your land registered with the land registry. Bottoming out all of those issues at the early, earliest opportunity.

Caroline Smith  04:34

Because I imagine David, that whole process of actually establishing who would then own the land. I mean, what might the length of that process be? Could that be a year or two years or?

David Low  04:47

Oh, absolutely. Because you start with going through the land registry, then it gets referred to the tribunal for determination, and it’s full-blown contested litigation at that point. So actually.

Caroline Smith  04:57

So it can derail your plans?

David Low  05:01

Well, absolutely, a case could easily run up to two years. You’re talking about significant, five-figure sums of costs. And of course, at the end, if it doesn’t resolve itself, whoever is successful at the end, normally will get a cost order in their favour. So the actual cost to the unsuccessful party is absolutely massive, let alone any potential impacts in terms of the delaying of whatever the project is that they want to carry out on the land. So it’s probably the worst-case scenario to encounter that midway through a process. Hence, coming back to the first thing to do is ascertain exactly what you own, and if possible, have that registered, because it’s a much clearer situation for you.

Caroline Smith  05:45

And it sounds almost like you would recommend that anybody owning land should do that without even thinking about diversification or if they were planning to sell. It’s just the right thing to do from the outset, is to make sure the land that you think you own is legally yours.

Victoria Walton  06:01

Definitely. I think that there are benefits for doing it, even if you don’t have any plans for the land, but you never know what you might want to do. And so, as David said, if something’s going to take two years, by the time an issue like that is dealt with, if you haven’t dealt with it in advance, you could have lost the chance of the project. Somebody could have used other land, or for whatever reason, it might not go to plan, and the climate might change. So it could be really important to mean that you lose the project if you don’t have issues resolved at the outset.

Caroline Smith  06:31

Makes sense. Yeah. So this particular farmer, who’s looking to diversify, hasn’t stated at this point whether he’s looking to sell the land eventually, but is obviously looking to do something different with it. Does this still apply in terms of you have to have the land registered from the outset?

Victoria Walton  06:48

You don’t have to, but I certainly think it would make it easier, and that will be our recommendation.

Caroline Smith  06:52

What else might you be looking for on the title?

Victoria Walton  06:56

The title really could include anything, as there are so many things that could come up in a title. The first starting point will be to check that you own everything that you think you own. As David has mentioned before, you can still have problems if, even if the land is registered, you check the extent of the red line on the land registry plan. If you don’t own everything that you own, there could be practical considerations. Do you need the piece of land that isn’t registered to you? Or if you do need that piece of land for whatever you’re thinking of doing, it could look to get to make an application for possessory title, and again, that’s where we would bring in the litigation team.

David Low  07:36

Adverse possession is a really interesting topic to consider as part of this, because that could work both ways. So, adverse possession is essentially where you’ve occupied a piece of land for at least 12 years for unregistered land, 10 years for registered land, which essentially allows you to then claim ownership of that land yourself. It’s quite a controversial piece of law, and it’s heavily litigated, because there’s certain legal tests that need to be applied before you are successful with it. But it means that even if you’ve got registered land in your name, it doesn’t necessarily mean someone else might not come out of the woodwork and claim rights over that land if you haven’t been monitoring that land, ensuring that you’ve been occupying and using it. In an urban setting, that’s not that common because people are in their houses or in their gardens. In an agricultural, rural setting, it’s far more common that you’ve got neighbouring farmers and other third parties, perhaps occupying a piece of land. And certainly we, we’ve seen it a number of times, you know, where it’s ended up again at tribunal, with a judge having to make a decision who actually owns this piece of land, even though it was registered in one party’s name.

Victoria Walton  08:50

So we want to check that we own the full extent of what we think that we own. As well as that, we want to make sure that the land’s got the benefit of any rights that are needed. Quite often, the rights that are there to check are for access, to make sure that you can actually access the land, and not only that, you can access it, but you can access it, for whatever is intended, because the right of access could be quite limited. We would also want to make sure that there’s, if needed, you can get the right to connect to infrastructure on a joining land, and the right to use that infrastructure if it’s going to be needed. So it’s just a case of making sure that you are able to do what you want to do.

Caroline Smith  09:30

What else might somebody have to consider regarding the title?

Caroline Smith  09:34

If that were to come to light, is that something that you’ve come across and that you can resolve, potentially?

Victoria Walton  09:34

I mean, the title could literally include anything, but my starting point would be one check that you’ve got that you own exactly what you think you own, that you’ve got the rights that you need, that there’s not any restrictions that are going to stop you from doing what you want to do, to see who owns the mines and minerals, because, again, that can stop you doing what you want to do. Check whether there’s anything else registered on the land, any overage that’s going to affect the viability of a scheme, and just check exactly what is on there. The land registry will register who owns the surface of the land. Somebody else could own the mines and minerals underneath that. And at least theoretically, if you’re going to do something to that land, whether it be put solar panels on, put a building on, or do anything to it, you could move those mines and minerals and disturb them so that the mineral owner can actually object to whatever you’re going to do. Quite often, there’s a financial penalty or a financial cost to put that right, rather than actually wanting to stop the development. But it’s better to be able to take that into account at the outset.

Victoria Walton  10:20

The mines and minerals in our area is on nearly every piece of land that we look at. So you need to decide how that’s going to be dealt with. Is it going to be dealt with by indemnity insurance? And quite often it can be, and if it can be dealt with by indemnity insurance, it’s really important that the landowner doesn’t do anything, doesn’t start to enter into negotiations with any third parties, because that could remove the chance of being able to get the insurance.  If insurance isn’t going to be viable, you might need to try to see who does own the mines and minerals and reach an agreement with them.

Caroline Smith  11:16

That’s really interesting. And then you mentioned overage. I don’t know what that means.

Victoria Walton  11:21

So overage is a way, if somebody sells land, the attention could be that it’s only not be used as grazing land, but they might, they might have in the back of the mind that at some point that land could be used for something else, and so they’ll impose an overage so that if the use of that land changes, and therefore the value of that land changes, they get a slice of that increase. So it might be that if the diversification plan may trigger the overage and result in a payment being made to a previous owner.

David Low  11:53

We get involved all the time with mines and minerals disputes, particularly if the indemnity insurance isn’t available, and looking to negotiate with the owner of those mines and minerals, because traditionally, an agreement is reached and some money changes hands to essentially avoid the need for any interference with the mines and minerals themselves. But that has a massive impact on the financial viability of, for example, a development site, particularly if it’s going to cause delay while those negotiations are ongoing, so it can front-load that now, and having that resolved early doors makes a big difference. So timing is also key, because if you’re entering into negotiations when your back’s against the wall, on a particular project, the other party you’re negotiating with is going to be in a much stronger position, perhaps, to get a better outcome for them. So by then, front-loading that and trying to deal with those sorts of issues early on, hopefully results in a better outcome. Because ultimately, with mines and minerals as an example, if you can’t reach an agreement and the developers wanting to push on with construction on the site, the owner of the mines and minerals has the ability to apply to court for an injunction preventing the whole site from proceeding on the basis that they would be prevented from accessing the mines and minerals if, for example, 500 houses were built. In practice, the owner probably isn’t going to be mining for those minerals, but that’s not the point. They have the right to that, and therefore, they can actually prevent the whole development from proceeding. So getting that identified early on and then resolved obviously makes a big impact on actually progressing with whatever the project is.

Caroline Smith  13:46

So your advice would be to straight away consult, to get legal advice, and then potentially work with an agent on the land itself?

David Low  13:56

Yes, absolutely. And the majority of the owners of mines and minerals will have established agents who are very used to doing these types of negotiations, but yes, identifying early on, if the project that you’re potentially looking at will involve disrupting or preventing access to the mines and minerals, then that needs to be flagged very early on and try and get resolution to that particular point, ideally, before you push too far down the project.

Victoria Walton  14:24

This mines and minerals issue is just not that. It’s on nearly every site that we deal with; there’s an outcome. It’s a financial cost, and actually, the documentation to put in place isn’t really a big problem. We just need to consider it and make sure that it makes the scheme financially viable, and then we can document what is agreed. So all of the things that we’re talking about, whether it be the extent of the property rights that you’ve got, rights that you need, and if anybody is physically on the property, most of these things can be resolved. There’s an answer to most of them. Whether it be looking at the extent of the land that you’re using, looking at indemnity insurance, or negotiating with third parties. Most of these things can be resolved,  but as David said, the timing is that is the key to making sure that you don’t wait until you’re actually in it, which actually puts the project on hold and makes it not viable, time-wise.

David Low  15:18

That’s where agents really come into the fore, in that we work really closely with agents on these sorts of issues, because they have a really important role to play, particularly if it’s before we get too far down the legal process, to help facilitate negotiations, identifying issues. Often, you’ll have an agent on both sides if there’s another party involved, and that line of communication is really key as well. So as Victoria says, there’s a resolution to almost all of these issues, as long as everybody’s talking to each other and trying to achieve that outcome. So again, having the owner, the lawyer and the agent working in tandem is absolutely key.

Victoria Walton  16:00

From our side, I would say it is key to have people talking, but it is key to get legal advice first, so that you’re not talking to the wrong person and invalidating your chance of being able to get indemnity insurance, or indeed invalidating any indemnity insurance that’s already there.

Caroline Smith  16:17

So your first port of call is come and speak to a commercial property expert. Yes, we know one. How can you be sure that somebody else isn’t using the land?

Victoria Walton  16:28

So, as well as looking at the legal title, I think it’s really important to physically have a look at the land and for the landowner to really see what’s happening there. And it might be that there is somebody in occupation of part of the land, that they are using it, or that they are using an access. Quite often, if there is an access being used, there’s evidence of it. So again, if that is happening, we need to look at what needs to be done, or what can be done, to stop that.

David Low  16:57

So, looking at access points, a bit like ownership, which can be paper ownership, someone’s actually transferred the land to you, or you’ve occupied it for a period of time. The same for rights of way. So you can have an express right of way that someone’s granted to you, but you can also get a prescriptive right of way, which is just through long use of using a particular track and over a period of time, the person been using that actually has the right to it, even though it’s not written down anywhere. So as Victoria says, inspecting that and ascertaining whether there’s something going on, if it’s something that’s really infrequent and has only been happening recently, it’s probably not an issue, and we can resolve that quite robustly, if it’s actually something that’s been running for a long period of time, that’s potentially a bigger problem, and we have to then look at the bigger project and either reach an agreement with that individual to try and exclude that right of way, or perhaps look at the overall and adjust accordingly to exclude that piece of land, because those rights are going to remain in place. So physical inspection of the land is absolutely key there, and any intelligence that the clients actually got about what they know about the land, because what they think they know isn’t always actually what’s happening day to day.

Caroline Smith  18:14

And are you suggesting that you would physically go and have a look at the land yourself, or would you work with an agent to do that?

Victoria Walton  18:20

We often go and have a look at the land physically ourselves. We would also look at standard inquiries with the client, so that they think they’re thinking about things, so we can tell them the things that we’re looking for, and also speak to the agent.

Caroline Smith  18:32

So it’s a team approach on that, absolutely. And again, it links to the point about thinking ahead, planning ahead.

David Low  18:39

Absolutely. Because if you look to the other extreme, if we do have cases that run all the way to a trial, for example, in the courts or in the tribunal system, judges will actually go and visit the site. That’s standard in the property tribunal, that if your case starts on a Tuesday, on a Monday afternoon, there will be a site visit with the judges and the barristers, and everyone goes out to visit it, because you get something from photographs and plans, but it’s not quite the same as actually being there. So physical presence is really important.

Caroline Smith  19:07

Just thinking again about the farmer and this piece of land where he wants to diversify, if he doesn’t want to sell the land, but wants to do something different with it. What’s the situation there?

Victoria Walton  19:19

So again, it’s a case of checking the title. There could be something on the title that restricts the use of the land, so it could specifically say that the land can only be used for certain things, or it could specifically exclude certain uses. So that would need to be checked to make sure that whatever is intended can actually be done. And if something is found on the title, again, it doesn’t mean that nothing can be done about that, because, again, we would look at that with work with David and his team, to see whether, first of all, if there’s a restrictive covenant on the title, is it actually still enforceable, and if it isn’t enforceable, can we get it removed? Which would be David’s team would look at that. Or if it is enforceable, can we negotiate with the person who has a benefit of it to get it varied or released, to allow whatever we want to do to happen.

David Low  20:08

And that one case that immediately springs to mind is one where we’re actually on the other side, so we act for the person who has the benefit of the restrictive covenant, so they’re the person who would enforce it. And in that case, the restriction is that the land could only be used for agricultural purposes, with only one property, one dwelling on the land. And the purchaser has now gone on and actually is running commercial operations from there and has built a second property. So it’s now up to our client to enforce that restrictive covenant and potentially claim back compensation. So we’re seeing that from the other side in this example. But that’s the risk that if you just ignore the restrictive covenant and carry on with whatever project you’re looking to do, that there’s potentially a significant financial consequence, and it’s potentially not just financial, because ultimately, although it would be a quite an extreme decision by the court, you could actually try and get an injunction requiring the land to be reinstated so the commercial operations removed the second dwelling taken down. Quite an extreme situation, but it’s definitely worth bearing in mind that if you’re looking at carrying out a project, you need to make sure that any restrictions on there, aren’t going to preclude that.

Victoria Walton  21:29

There are so many different ways in which land can be diversified. So it could be holiday lets, residential development, energy farm. There are so many different things that the land could be used for, but that might depend on market conditions, on the landowner’s appetite for risk, on the market viability and the chance of success. So there are so many different things that they then need to consider, to then decide which, which way they’ll go forward with it. And one important thing is to also consider whether there’s any tax planning that should be done and when that should be done, because it could be, and we do see this, particularly with landowners, agricultural landowners, that it might be worth the land being transferred to another party before there’s an increase in the value, because this diversification will likely increase the value and could give rise to a capital gains or additional inheritance tax. So we would again bring in other people in our team. So we’d work with our private client team, the client, the landowners, tax advisors and financial planners themselves, and look to see whether there’s something that should be done and make sure that it’s sure that it’s done at the right time.

Caroline Smith  22:45

So there’s a real sense of teamwork there, isn’t there, that actually they would get legal advice initially, but then from there, there’s a sort of team of experts that would be pulled in too.

Victoria Walton  22:54

It’s a really good starting point to check what you are able to do with the land, and then, or even at the same time, be speaking to an agent to see what that land could be used for, according to market conditions and the length of time that something might take, the chance of success. There are so many things that really need to be considered from a practical point of view, and it’s also worth at that time, also looking to see whether there’s anything any financial planning that should be done. So we see it, particularly with agricultural land, where it might be worth seeing whether that land should be passed to somebody else before there’s an increase in value, before there’s a potential capital gains for there’s any potential inheritance tax liability, and see if we can make some financial planning to try and save some tax along the way.

Caroline Smith  23:40

Makes total sense. I mean, it’s complex. I think that comes across, there are so many considerations and planning ahead is really important, so that almost if you want to diversify your land, get advice well in advance before you start that process. So thank you. I’ve loved talking to you today. I mean, I know what experts you are. I see you around the office, but actually, to hear you talking like this, it’s been brilliant. So thank you very much.