What if a site has a possessory title?

The Prime Minister in June announced what is described as “the most radical reforms to our planning system since the Second World War, making it easier to build better homes where people want to live”. 

The tag line, “Build, Build, Build”, has made countless headlines and the hope is that changes to the current Use Classes Order, extending permitted development rights and introducing a fast track procedure for building on top of existing properties will help to kick start the UK economy. 

There is also the new planning white paper, which proposes a major overhaul of the current planning system, although the jury is still out on whether the proposals will make any difference in practice. 

With this renewed emphasis on the part that residential development has to play in the UK economy, this article focuses on considerations that landowners and developers should have when they encounter a site, which either has or is partly made up of land that has possessory title.

What is Possessory Title? 

Possessory title is inferior to absolute title, with absolute title being the best class of title available. It means that a landowner’s ownership of such land is defective. 

This type of title arises in two ways:

1. where a landowner has lost their original title deeds and makes an application to be registered at the land registry as the proprietor based on proof that they did acquire title to the land at some point; or 
2. where a person makes an application to be registered as the proprietor based on their adverse possession, which is commonly referred to as a “land grab” or “squatters rights”. This requires 10 years of adverse possession in respect of land that is already registered and 12 years for unregistered land. An applicant must meet the threshold and requirements of HM Land Registry to succeed in such a claim. 

What is the risk?

The risk is that a third party may come forward claiming true ownership of the land. This risk is particularly pertinent in circumstances where the possessory title land was originally acquired through an adverse possession claim (and not simply lost title deeds). 

Practical tips

The existence of a possessory title can cause issues for the delivery of a residential site, however below are practical tips to bear in mind as the issues can often be overcome. 

Indemnity Insurance 

There are generally indemnity insurance policies available in the market to provide cover in the event that a third party comes forward with an ownership claim adverse to that of the landowners.

Examples of the types of cover provided for would usually include costs associated with the reduction in the market value of the land or costs of altering/demolishing plot(s) to comply with any settlement, order or injunction arising from a claim. In the case of a developer, a policy with adequate cover ought to be placed on risk at exchange of contracts to purchase the site. 

Landowners who are looking to bring a site to market can pre-empt the requirement for such a policy and put one in place, although this may come at considerable cost depending on the gross development value of the land. If there is an existing policy in place, it may require a variation to ensure it is sufficient to meet the needs of redevelopment.

Scheme design 

Even with sufficient indemnity insurance in place, it is advisable where possible not to erect any buildings or roads on land with a possessory title. The ideal position would be keeping any possessory title land as open space, however that may not always be possible and can only work where part of a site has such title. 

If erecting dwellings on land with possessory title is unavoidable, some (but not all) lenders for plot purchasers accept possessory title as good security if a suitable indemnity policy is in place. However, there is no guarantee that lenders who currently accept possessory title as good security will continue to do so. 

In addition, generally a new build house having possessory title may still be seen as an adverse matter by plot purchasers (even if their funder is willing to proceed) due to them not wanting to own a defective title. 

Upgrading the title 

Once land with possessory title has been registered for 12 years or more, it is possible to apply to HM Land Registry for title to be upgraded to freehold absolute title. The land registry can allow such an application where the Land Registrar is satisfied that certain criteria have been met. 

This option may well be worth considering for a landowner, depending on the timescales involved. If a landowner can upgrade the title, the issues associated with a possessory title considered in this article fall away.