The belt-and-braces approach to recording land rights may sometimes feel like overkill or regarded as an unnecessary cost, but there are benefits to having formalised rights. 

Informal arrangements are often practical, evolve over time and can be hassle-free, until the rights need to stand on their own merit, away from the nuances of the informal deal struck between two parties. With our services covering renewables, utilities and operating asset and property valuations, we frequently come across scenarios where informal arrangements have an unexpected adverse and unwelcome impact on value for our clients.

Due diligence

To provide context, we have highlighted recent examples which have come across our desk since the turn of the year and themes that often arise, which could have been avoided through careful management at the outset or prior to the point of valuation, purchase or sale.

We recently valued a small renewable energy asset portfolio for potential purchase purposes. The assets had been operating for well over a decade and to date, the cabling arrangement from generation to export had served its purpose well.

Having made our due diligence enquiries, it transpired that some of the cable runs between the operating assets and the grid network crossed third-party land, but there were no formally documented rights for this apparatus.

Although it works well in practice, the circumstances present risk, as ransom payments could be sought, or a request made to remove or re-route the cabling which would come at a cost and was an unknown at the date of valuation. Although rights, if uncontested, can be formalised by prescription through the effluxion of time, this presents a risk until this 20-year milestone where rights can be obtained by virtue of prescription is surpassed. Our valuation, therefore, reflected the risk associated with the uncertainty this presented when reaching our opinion of market value.

Into the millions

We recently valued a residential property for inheritance tax purposes, with the property benefiting from a mains electricity supply. On review of the title, the electricity cable right from the property to the meter, which was on a third-party-owned property, were specific to the late property owner, and did not include any rights in favour of an incoming purchaser or successor. Our valuation therefore reflected the risk and costs associated with connecting to the mains electricity network, should the incoming purchaser or successor wish for the property to remain ‘on grid’.

Ancillary rights required for development can carry significant value and can present a risk for the grantee but an opportunity for the grantor. Examples include retrospectively negotiating rights of access to allow a developer to construct the boundary of a sub-station, negotiating drainage servitudes for residential developments, and upgrading existing rights to accommodate additional development. Sums negotiated can be considerable, and indeed in some circumstances, into the millions.

A common area of our practice is to advise on formalising rights retrospectively, which often comes at greater expense to the benefiting party than negotiating and formalising rights in advance or before a trigger point, for example coming to the market.

Where rights are not formalised, this can often lead to additional cost and delay, or reduction in value to reflect the associated risks, so there is merit in taking advice to mitigate against the impact of informal rights which can work well in practice, but do not sit well on paper.  

Don’t hesitate to get in touch if you’re concerned you may need to secure your rights.