In this guide, our expert commercial property solicitors explain what ransom strips are and how they can impact you and your development. We cover some of the common legal issues associated with ransom strips and explain what you can do if you are faced with one.
Contents:
- What is a ransom strip?
- How is a ransom strip created?
- How do you identify a ransom strip?
- What legal issues can occur with a ransom strip?
- What should you do if you discover a ransom strip?
- What options are available if negotiations fail?
- How do you value a ransom strip?
- Can a developer negotiate the purchase of a ransom strip?
- Summary
What is a ransom strip?
A ransom strip is a parcel of land owned by a third party and lies between a site earmarked for development and other private land or public highway. This strip of land is usually crucial in providing access and without it, the development may be significantly hindered or even impossible. The owner of the ransom strip can effectively hold you to ransom, requiring payment to sell the strip or grant a right of way over it to allow you access to the site. This can lead to delays and increased expenses, making ransom strips a costly source of commercial property disputes.
How is a ransom strip created?
Ransom strips can be deliberately created or accidental. For example, a landowner could have sold a large parcel of land that is rife for development but retained a parcel along one or more boundaries that gives access to other private land or a public highway. In other situations, a ransom owner could have seen an opportunity and strategically purchased the strip of land that falls between a development site and the main road/access point, giving them leverage for negotiations. It may be the case that a landowner has sold off a portion of his land for development but retained the strip for access to his own remaining land, inadvertently creating a ransom. Poor planning and boundary disputes can also result in the creation of restrictive parcels of land.
How do you identify a ransom strip?
A ransom strip can be spotted when conducting a search of the map at the Land Registry – which also confirms if the land is registered, or unregistered. Essentially you would be looking for a piece of land that falls between the development site and a potential access point, along its boundary. You could also identify a ransom strip by physically attending and inspecting the site, with or without the help of a professional/surveyor.
What legal issues can occur with a ransom strip?
Access issues
One of the primary issues with ransom strips in commercial development projects is access-related challenges. If you cannot secure the necessary rights to pass through it to reach the development site or come to an agreement with the owner to acquire the strip, the project may be severely hindered or even rendered unfeasible. It is worth noting that access may not be limited to physically accessing the site only – it may be the case that your project needs to lay services, media or utilities under a ransom strip of land that the owner is unwilling to grant rights for without payment.
The project is held up
The presence of a ransom strip can lead to significant delays in the development project. Negotiations over access rights, valuation, and potential legal disputes can prolong the development timeline, causing financial losses and impacting project deadlines. This inevitably has a cascading effect on the overall project schedule and budget.
Planning permission issues
Ransom strips can also create complications in obtaining planning permission for the development project. Local authorities may require evidence of secure access rights or services to the site, and the presence of a ransom strip can raise concerns about the viability of the project.
Dispute over the valuation
Another issue that can arise with ransom strips is disputes over the valuation of the land or the ransom amount demanded by the owner of the strip. Determining a mutually acceptable price for the access rights or the ransom strip itself can be a contentious issue, especially if the parties involved have differing opinions on the value of the land. This can lead to protracted negotiations or legal proceedings to settle the valuation dispute.
Difficult to determine who the owner is
if the ransom strip has not been registered at the Land Registry, it may be challenging to determine the rightful owner of the ransom strip. There may even be multiple claimants or claims of adverse possession claims.
What should you do if you discover a ransom strip?
Seek legal advice
Given the far reaching financial and practical implications, it is crucial to consult a legal expert with experience in dealing with ransom strips as soon as possible.
Attempt to negotiate with the owner
Ideally, you will discover the strip before acquiring the development site, which may give you more leverage to negotiate. For example, you may be able to negotiate a reduction in purchase price to reflect the value of the ransom strip. If you uncover the ransom strip post purchase then your hands are tied - giving the owner more bargaining strength. You would then be left with negotiating to either purchase the ransom strip from the owner or have them grant you a right of way across their land (both of which they may charge a disproportionately high price for).
What options are available if negotiations fail?
Alternatives access
If negotiations reach a stalemate, you may need to resort to other less attractive or practical routes to access the site (if available). This will inevitably have an impact on the commerciality and success of the final development, as tenants or purchasers of the plot will face the same issues. Land assembly may be an option where you acquire adjoining parcels of land along another boundary to the site (if available) to create an access route to the nearest public highway.
Plough on anyway
In some cases, particularly where the land is unregistered, and it is difficult to track down the true owners, developers can go ahead without the need to purchase the land. This does leave you exposed to a compensation claim for rights that have been unlawfully exercised, but it may be possible to secure an insurance policy against such a risk. Either way, it is crucial to talk to an experienced commercial property solicitor before taking action.
Compulsory purchase
In exceptional circumstances, local authorities may issue a compulsory purchase of the ransom strip. They would need to demonstrate a compelling case in the interest of the public in order to force the ransom strip owner to effectively sell the land for a ‘fair and reasonable’ level of compensation. Local authorities may be willing to go down this route to facilitate and encourage land development, particularly for large scale developments in areas of major housing shortages.
How do you value a ransom strip?
There is no concrete framework by which to value ransom strips and parties are free to negotiate a mutually acceptable sum. There is case law from 1961 often used as a starting point by surveyors. Although not a hard and fast rule, the ransom strip was deemed to be worth one-third of the increase in value of the benefitting land, after deducting developer’s profit and other costs. That said, it has been known for courts to award ransom payments up to 50% of the uplift in value created by the release of access to the development site. Other commonly used methods of valuation by surveyors, and factors are taken into account when determining a price include residual calculations, comparable evidence and the timing of the valuation (ie is it before or after planning permission has been granted).
Can a developer negotiate the purchase of a ransom strip?
It is common practice for developers to negotiate the purchase of a ransom strip, giving them control and alleviating any future disputes or concerns that may arise if you are relying on the grant of access rights only. Most ransom strips are intentionally created, with the owner hoping to achieve a financial benefit from retaining the land so they are open to selling. It then comes down to price.
Summary
The presence of a ransom strip can complicate and delay development projects. Conducting thorough due diligence and identifying a ransom strip before committing to purchasing a site undoubtedly puts you in a stronger bargaining position than being held to ransom by the strip owner after you’ve spent money. That said, it is not always possible, and developers do unfortunately find themselves faced with paying high premiums to secure access or purchase the strip. Either way, it is essential to consult with an experienced commercial property solicitor as soon as you become aware to assess the legal issues and explore your options.
