Out-Law Guide | 29 Nov 2013 | 11:15 am | 6 min. read
Rights to a piece of land and to the minerals that lie underneath it can be owned by different people. It is difficult to find out who owns minerals rights, which means that housebuilders are increasingly finding out too late that other parties are claiming rights, and compensation, related to house building activity.
This is an increasingly common phenomenon because minerals rights holders are growing more confident about asserting their rights. This is an issue that housebuilders should consider from the start of a project. The best way for housebuilders to protect themselves is through insurance.
If minerals end up belonging to someone other than the owner of the surface land, the minerals are 'severed'. There are four ways in which minerals rights can be severed. These situations are:
Manorial rights will disappear the next time the surface land is sold, unless the owner of those rights registered his interest against the surface owner's title. Those that were registered remain in force. The others will disappear the next time the land is sold.
Why is this important to housebuilders?
Housebuilders install foundations and subterranean services and carry out much groundwork. Any earthmoving works will involve going through or removing a minerals stratum. If that minerals stratum is owned by someone else, piercing it will be a trespass against the minerals owner. This could lead to a liability for damages or, more worryingly, could lead to an injunction to stop work on the site.
Minerals owners are increasingly asserting that any foundations work, services installation or road building amounts to a trespass. Minerals owners are better informed and more willing to raise court action than ever before. Because of this, housebuilders need to consider minerals ownership in every development.
There are cogent arguments that the surface owner has the right to carry on normal building activities, but in many cases title indemnity insurance is the best way to mitigate risk.
Problems with due diligence
Housebuilders are in a difficult position because there may be no clues from a title that any minerals have been severed. The owner/seller of the development site may not know if the minerals have been severed.
Housebuilders acquiring a registered freehold absolute title to a development site are still at risk of an unknown mineral severance affecting that site. Even if there is no entry registered on the title, minerals are not necessarily included in the title.
The Land Registry will sometimes put an entry on a registered title to say that the minerals are not included (or are 'excepted'). Usually the Land Registry entry will not explain the extent (type, depth and area) of the severed minerals. To find that out you would have to look at the pre-registration deeds to see if the severance was done by conveyance and, if so, for the terms of the severance. Even then, there is unlikely to be any clarity from the conveyance.
Housebuilders are at risk because the Land Registry indemnity (ie. where the Land Registry will pay compensation if the registered title is incorrect) does not apply to severed minerals within a registered title unless the registered title specifically notes that the minerals are included within it. which they rarely do.
Manorial rights to Minerals
Manorial rights to minerals will disappear the next time the land is sold unless they have been registered against the surface owner's title.
This protection does not apply to minerals titles which have been severed in any of the other ways set out above.
Rather unhelpfully, the Land Registry has said that they will continue to register notices to protect manorial rights even after an acquisition for value. The registered owner must object and apply to remove the notice.
Housebuilders should consider making three searches for each new development site:
How can housebuilders protect themselves?
Title Indemnity Insurance
Minerals rights protection policies are a simple and relatively inexpensive way to mitigate the risk and should be considered in most transactions. One policy can be placed which covers the housebuilder during the construction phase and the individual plot buyers after construction. Discounts are usually available for volume insurance.
Whilst insurance will not prevent a minerals owner asserting rights, it can negate to a large extent the cost implications of that. Housebuilders and land owners should not approach minerals owners to obtain their consent to the works or to negotiate a purchase. Insurers would be unlikely to agree protection where the rights owner has been alerted to the development.
Understand the title on offer
Thinking about the four ways in which minerals may have been severed.
Seek an indemnity or warranty from the seller
This depends on covenant strength and it is unlikely to appeal to sellers. It is also unlikely to be transferable to plot buyers. It might work as an interim solution during the construction phase.