Claire Acklam highlights mines and minerals ransoms – an increasingly prevalent risk for developers – and offers her practical advice.
Claire Acklam is a Senior Associate Solicitor in Walker Morris‘ Commercial Dispute Resolution team, specialising in advising developers and housebuilders in relation to all types of developer dispute, both from a pre-emptive risk-management perspective, and when it comes to resolving issues after they have arisen.
Mines and minerals ransom: What is the risk?
The phrase “mines and minerals are excluded from this title” (or words to that effect) is commonly found on a property’s Register of Title. However, landowners and developers may not be aware that, on any title where mines and minerals have been excepted or reserved – whether the land be one small plot or a multi-acre site – there is the potential for a developer to be held to ransom.
“Mines and minerals” can comprise anything from gold, silver, semi-precious stones or metals, to clay, gravel, sand and everything else below the topsoil surface of land. There can be value in mines and minerals of any kind – whether per se or because their owner may be able to effectively hinder development.
Consequently, some companies now make a business of buying-up minerals rights for the specific purpose of holding developments to ransom.
What are the options for developers?
Landowners and developers increasingly face the situation where another company owns the mines and minerals, meaning that the developer can only build on the ground and up. When development starts on site, the company notifies its ownership and threatens an injunction to prevent any interference with the mines and minerals. The company thereby demands a ransom, to enable the project to proceed.
Developers have a number of options for responding to such demands.
- Agree to pay a negotiated sum to acquire the rights to the mines and minerals. This is likely to be a sensible, commercial solution in many cases. However, developers should consider carefully any leverage for the making of any payment. For example, there is currently no clear case law on whether a company who has bought the mines and minerals is actually entitled to an injunction. Such companies may not actually want to test the courts for fear of setting a precedent that they had no right to an injunction, and at best may be entitled to [potentially nominal] compensation, thereby utterly derailing their business model.
- Call their bluff. Apart from the risk of an unfavourable precedent, consider whether the company will actually be in the financial position to pursue an injunction. The court requires an injunction applicant to undertake to pay for losses suffered by the developer in the event that the application fails. The financial risk to the applicant company of this ‘cross-undertaking in damages’ is potentially very significant where proceedings delay development.
- Consider challenging whether the company’s rights or reservations actually extend to lawfully preventing the proposed development. The developer might be able to obtain a court declaration that proceeding with the development would not be an actionable trespass against the company in any event, thereby entirely undermining the company’s threats.
- Check whether, when you purchased the site, your solicitor advised of the mines and minerals ransom risk and whether you obtained indemnity insurance. Any advisory failings might merit a solicitors’ negligence claim to counteract any losses suffered at the hands of the mines and minerals owner.
Whilst it may be possible to deploy options such as these in many cases, it does not follow that developers can treat injunction threats or applications lightly. A real bite behind a mines and minerals ransom is often that, ultimately, to sell plots, developers need to be able to give good and marketable title and have to disclose the fact of any dispute to potential buyers. Customers may not wish to proceed, and lenders may not wish to lend, where there is any indication of an issue.
The best advice is therefore ‘prevention is better than cure’. Developers should ensure that they and their solicitors carefully check the Register of Title of all potential development sites – large or small – specifically to understand what exactly is being offered for sale, what is being excepted or reserved in respect of mines and minerals, and what might be the potential consequences for proposed development.