Escheat is a process whereby ownerless freehold land (in England and Wales, with exceptions) may be returned to the Crown. In this article I will be looking at how and why it occurs and how it can affect landowners.
How does freehold land become ownerless?
A good example is an issue which I came across in practice: when acting for a freehold landowner in connection with the sale of a commercial unit on an estate, an ownerless unadopted access road (the only means of access to the estate) came to light.
The unit was one of six constructed in the 1980s. Access into the estate, and to each unit, was by way of a private access road. The freehold ownership of the road was retained by the original development company with, it is presumed, a view to repairing and maintaining the access road for the benefit of the owners of the units on the estate (subject to the unit owners contributing to the cost). My client was unaware of this arrangement as no repair and maintenance had been carried out for many years nor had any contribution been demanded.
The development company had been dissolved many years prior whilst the title to the road remained registered in its name. The client was not aware of any communications relating to this nor any assignment or transfer of ownership. It seemed likely in this case that the development company was part of a group of companies and set up for the purpose of the 1980s development. As it was no longer used or needed, it was dissolved. Ownership of the road by the development company had been overlooked prior to the dissolution of the company.
Upon dissolution of the company, ownership of the road passed to the Crown, as the ultimate owner of all land in England and Wales. At this point, the Bona Vacantia Division (BVD) of the Government Legal Department has the choice to either disclaim the land or sell the land for full market value.
In this case, the freehold title to the road was disclaimed.
What type of land is likely to be disclaimed?
The key factor for the Crown when deciding whether to disclaim land is whether ownership of that land will leave it vulnerable to any liabilities and/or risks associated with ownership.
Examples of land which the Crown would be likely to disclaim are:-
- land used in common, such as private roads, service yards, amenity land, or the common parts of an estate or a block of flats – here, for example, there may be obligations to pay or collect a service charge or ground rent, or to comply with certain obligations or provide services;
- the tenant interest in a commercial lease;
- property subject to onerous covenants or other potential liabilities;
- contaminated land or property with dangerous buildings, trees or other items;
- property in negative equity (that is, subject to security for a debt greater than the value of the property);
- property or assets subject to a dispute or competing claims;
- low value property (the BVD do not appear to be willing to sell land for less than £1,000 plus costs).
What happens after the land is disclaimed?
Using my example, once the land is disclaimed, the road never belonged to the Crown and ‘escheated’ to The Crown Estate to be dealt with.
However, when this occurred, The Crown Estate did not own the land: its purpose is only to ‘deal’ with the issue of the ownerless land in the absence of anyone else being able to.
What is The Crown Estate?
The Crown Estate is an independent commercial business, created by an Act of Parliament in 1961, with a diverse portfolio of UK buildings, shoreline, seabed, forestry, agriculture and common land.
The Crown Estate is not the private property of the King. Its assets are hereditary possessions of the Sovereign held ‘in right of the Crown’. This means they belong to the Sovereign for the duration of their reign, but cannot be sold by them, nor do revenues from the assets belong to them.
The Crown Estate does not take any action which might be construed as an act of management, possession or ownership in relation to the Property, since to do so may incur liabilities associated with the property. The Crown Estate accounts to the Treasury for its operating surplus, so such a cost would end up as a burden on the public purse.
What happens after the land is disclaimed?
The Crown Estate may (there is no obligation or time limit requiring it to do so) look to dispose of the land. If no disposal is made, the land remains ownerless indefinitely.
If The Crown Estate does dispose of the land it is under a statutory obligation to obtain the best value for the disposal, with a minimum value of £5,000. The land cannot therefore be purchased ‘on the cheap’ on the basis that it has been escheated to The Crown Estate.
Whilst the freehold title to the land is extinguished once the land is disclaimed, any mortgages, legal charges or other encumbrances which might exist against the former freehold interest will continue and carry forward to any sale to a third party (any registered Land Registry title to the land will not be closed automatically).
The Crown Estate process
A consultation process will be followed where an opportunity to participate in the purchase of the land will be given to persons who may have a legitimate interest in its future or who might be adversely affected by its sale – in my example, the owners of the other units on the estate may fall within either category given the importance of the estate road to access their respective units and its ongoing repair and maintenance (the estate unit owners could decide to join together (perhaps to incorporate a company of which they are directors or members) to purchase the estate road) – or in the absence of any persons, The Crown Estate would give an appropriate person or body the opportunity to purchase the land.
In addition to the purchase price for the land (minimum of £5,000), any potential purchaser will need to contribute towards The Crown Estate’s legal costs and a market appraisal for the land which, in a straightforward case, start at £3,500 plus VAT, in addition to a potential purchaser’s own legal costs and other expenses relating to the purchase.
How are the implications for landowners?
In my example, the fact that the road had escheated to The Crown Estate had cost implications for my client and caused a significant delay to the progress of their sale (whilst we investigated the issue and liaised with The Crown Estate and the Land Registry). My client’s issue was complicated by a restriction being registered against their freehold title in favour of the company which prevented a disposal of the property without the involvement of the company, which impossible to satisfy.
Given the types of land which are likely to be disclaimed, here are a few examples where disclaimed land could have an adverse impact on landowners:-
- neighbouring land is contaminated and no action is taken;
- access is required over the disclaimed land but it has fallen into disrepair, potentially preventing access, potentially affecting trade;
- land comprising common parts of a block of flats is disclaimed, payment for services supplied to those common parts is not made and services cease.
How can landowners avoid this trap?
If your land neighbours or adjoins any type of land used in common or as described above, if you are the landlord of a commercial lease (regardless of the length of the lease term) or if you require access over neighbouring land to access your property then you should consider whether there are any red flags for concern that the property might have escheated to The Crown Estate and monitor the situation carefully: Consider whether:
- the tenant or land owner is carrying out their obligations such as to repair and maintain an access road or property;
- the neighbouring land is falling into disrepair which could lead to contamination or property damage issues such as dangerous trees;
- there is Japanese Knotweed on the land which is not being controlled/eradicated which could affect your property.
These red flags could mean that, in the event of the company landowner being dissolved, the Crown would be likely to disclaim the troublesome land.