The Crown: a royally reluctant seller?

It is common for landowners in England and Wales to own freehold land forever or at least for the duration of their lives before the land is sold or passed on to the beneficiaries of a Will.

If the land is registered at the Land Registry the owner of the land will be shown as the registered proprietor on the title deeds. The title must be updated as and when the ownership of the land changes. This is to make it clear who currently owns the land and from what date to avoid any disputes.

Although the land will be registered in the name of the owner, the superior interest in all freehold land in England and Wales is effectively owned by the Monarch who may assume ownership of the land in certain situations.

This article will explore one process by which the Crown may take on the ownership of freehold land that has becomes ownerless. This process is called escheat and we summarise below how escheat may cause problems for developers.

What is escheat?

Escheat is a common law process which ensures that land in England and Wales is not left without an owner and is instead vested in the Crown if it does become ownerless.

When does escheat occur?

First, it is important to bear in mind that escheat can occur regardless of whether the land is registered or unregistered. If it can be ascertained that the land (in England, Wales and Northern Ireland) is ownerless the Crown is entitled (but by no means obligated) to take ownership of it. If escheat occurs the Crown will not own the land or manage it in the way we would expect a traditional landowner to.

For the purposes of escheat land may become ownerless in the following situations:

1. a company becomes insolvent and the freehold property they held prior to insolvency is disclaimed; or
2. an individual becomes insolvent and their freehold property is disclaimed; or
3. a foreign company ceases to exist and they owned freehold property in the UK (excluding Scotland); or
4. an Industrial and Provident Society or a Friendly Society ceases to exist and they held freehold property.

So what happens to land when it does become ownerless?

If any of the above events occur the land will automatically pass to the Crown, subject to the exceptions mentioned below.

The Crown will take possession of the land as long as they are satisfied that beyond reasonable doubt there is no owner. Assuming the Crown is satisfied that the land is ownerless it will vest in the Crown but the Crown will not be burdened with the liabilities or responsibilities that come with the land unless it acts in a way that could be deemed as management. We will look at this point in further detail later on.

If the land does escheat to the Crown the title will be extinguished and the encumbrances will remain in place although the Crown will not be subject to these.

Interestingly the Crown is under no obligation to take on the land and will most likely look to sell it to an appropriate buyer. Those who are interested in acquiring the land that has escheated to the Crown may do so by application to the Crown’s solicitors, Burges Salmon. If the land is within the County of Cornwall or County Palatine of Lancaster, the Crown is not entitled to it and instead Farrer & Co will act on behalf of the Duchies of these areas. Applicants wishing to acquire land that is subject to escheat may also apply for a vesting order.

Both processes are neither simple, quick nor cheap.

Why might escheated land be an issue for developers?

Although you can apply to purchase land from the Crown there is no guarantee that your application will be accepted. There are a number of conditions that the Crown will seek to impose on you in order to prove that you are an appropriate owner of the land and worthy of the title. For example, the Crown may require a local consultation to ensure that the purchase will be in the best interests of the local area. If buying property wasn’t stressful enough, satisfying the Crown and their solicitors’ requirements will add additional burden, delay and costs to an already lengthy process.

If the Crown agrees to sell the land in question to a suitable buyer they will seek to obtain the highest market value possible which in itself is not ideal, nor are the fees that come with it as the Crown may require the buyer to contribute towards its legal costs, on top of their own, which are likely to be substantial given the timescales and extra due diligence involved in this process.

As touched upon earlier the Crown will not own the land or assume the role of landowner in the usual sense. If ownership vests in the Crown this will be free from the usual liabilities and responsibility any other landowner would be faced with. If the Crown is shown to manage the land it will have to take on these liabilities and responsibilities. The Crown will be seen to manage the land if it sells in part or in tranches which may cause an issue for developers or anyone hoping to acquire the land in segments.

Vesting orders – a way out?

It is possible to challenge land that has escheated to the Crown by applying for a vesting order. A vesting order ultimately seeks to prove that the land in question is not the subject of escheat and someone else is entitled to own it. If the Attorney General, who acts on behalf of the Crown in this instance, is happy that a third party is entitled via a trust over the land the vesting order may be granted by the Court and the Crown will not challenge the application or seek to claim the land as its own.

The case of Quadracolour Ltd v Crown Estate Commissioners [2013] EWHC 4842 (Ch) is a good example of what could happen if you have an option over the land that has become the subject of escheat or if a trust is created. In this case the beneficiary of the option wanted to buy land that had escheated to the Crown on the basis that they had an option over the land before the landowner dissolved. In this situation, the Crown believed a trust had been created by the option agreement and it therefore was not entitled to deal with the land but instead advised the beneficiary to apply for a vesting order to claim ownership. The beneficiary of the option did just that but the High Court wasn’t satisfied that the land was held on trust, but granted the vesting order anyway on the basis that the beneficiary of the option was entitled to the land before it was disclaimed.

Whilst this example might seem promising to a developer, a vesting order can be contested by the Crown. It may contest the application if the Attorney General is not satisfied that a trust has been established or if the land in question is of high market value. Development land is likely to fall into the latter category so there is no guaranteed success. It is also important to note that whoever applies for the vesting order will be obliged to pay for not only their costs but also the costs of the Attorney General and the Treasury Solicitor regardless of whether their application succeeds or not. You will `note a recurring theme here regarding costs and additional fees incurred when attempting to purchase land that is subject to escheat.

Conclusion

Although we may rarely come across land that is the subject of escheat it is important to understand that the Crown is unlikely to be the easiest seller to deal with. Whilst we have had a look into a few issues that developers might face with escheat there are more out there and we must go into the acquisition process with our eyes open to the royally stringent requirements.

This article is from the first issue of Foundations, our newsletter for those working in the housebuilding industry. To download the latest issue, please visit the newsletter section of our website. For further information please contact Harriet Celerier or another member of Birketts’ Housebuilders Team.