Exception of mineral rights and the implications on property development

24 May 2019

There is a general presumption, both in law and amongst the general public, that freehold owners own - and thus are entitled to - everything below their land all the way to the centre of the earth.  However, there are situations in which the general presumption of ownership does not apply.
Let’s start with the obvious question: what are minerals?  Whilst difficult to define, a useful place to start is the Town & Country Planning Act 1990, which defines minerals as “all substances in or under land of a kind ordinarily worked for removal by underground or surface working”.
Ownership of particular minerals automatically vests in certain bodies.  Oil, gas, gold and silver all belong to the Crown, regardless of who owns the freehold; coal ownership resides with the Coal Authority.  Other minerals, however, are generally privately owned, often by the freehold owner of the surface land, unless ‘severed’.
How can ownership of minerals in the subsoil, or indeed on or above the land, be severed?  There are various methods, which include:-
A.      Exception or grant of mineral rights in a Conveyance or Lease;
B.       Enfranchisement of Copyhold Land;
C.      Land subject to an Inclosure Award; and
D.      Land acquired pursuant to Compulsory Purchase Order.
The most prevalent method by which ownership of minerals is severed is method A above which occurs when land has been transferred and the transferor has decided to retain ownership of the minerals, usually to retain the value present in any such minerals.  Where this has occurred, you should expect to see an entry on the title which states that the minerals are not included, or have been ‘excepted’.
Severance can be problematic where land is purchased for specifically for development purposes.  Mineral owners are becoming increasingly assertive at claiming trespass for the laying of any foundation works, service installations or road building;  depending on whether there are any limitations on the depth of the mineral rights, you could be committing trespass as soon as the first spade hits the soil.  This effectively means that separately owned minerals should be treated as a separate piece of land, in a similar way to a ransom strip.
If you carry out development without the consent or approval of the mineral owner, they could pursue any of the following remedies:-
  • Injunction – may be awarded to prevent trespass into the mineral strata;
  • Damages - if a trespass has been committed ie. digging on site has begun; or
  • Compensation – which could represent a share of the profit generated on the development. 

As you would imagine, any of these could prove fatal, or at least highly costly, to a development project.
Risk management
It would be sensible, therefore, to consider an indemnity insurance policy at the outset as part of a comprehensive risk management strategy.  Such a policy would provide a level of cover against some, but not all, losses sustained should the owner of the minerals be awarded an injunction, compensation or damages.  A suitable policy will likely be required once the site has been developed and the individual plots are being sold by not only the individual plot purchasers, but their lenders and the new build warranty providers too.
However, please note that insurance is not an absolute solution for title issues such as this, and it may not be acceptable to plot buyers or lenders.  For more details on the limitations of defective title insurance please see this article by Isabel Alderton-Sell.
Of course if you are able to ascertain ownership of the minerals, you could try to negotiate the purchase of the mineral rights from the owner, or to seek a right from them to lay foundations, install services or build roads.  There are two major risks in this strategy: firstly, the owner may simply refuse or require a prohibitively high payment, thus rendering the land ‘dead space’ as far as development is concerned; secondly, indemnity insurance providers generally do not permit contact with the mineral owner, so you could then find it very difficult to obtain the policy you would then need.
In conclusion, it is essential that you do not underestimate the importance of mineral rights.  They must be identified at an early stage and, if severed, treated almost as if they are a similar piece of land, as you would a ransom strip.  None of the options available are entirely fool proof, so professional advice is imperative.
For further information or if you require advice, please do not hesitate to get in touch.

Image by pozytywnewnetrza from Pixabay.

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