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Responding to a mines and minerals ransom: What developers need to know

Print publication

16/12/2020

Mines and minerals – what is the issue?

“Mines and minerals are excluded from this title” (or words to that effect) is a seemingly innocuous phrase commonly found on a property’s Register of Title.  However, on any title where mines and minerals have been excepted or reserved, there is the potential for a developer to be held to ransom.  The existence of any wording to this effect on the title to proposed development land should prompt a developer to proceed with caution.

“Mines and minerals” can comprise anything from gold, silver or semi-precious stones or metals, to clay, gravel, sand and everything else (in very broad terms) 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, or even prevent, development.  In fact, some companies are today making a business model of buying-up minerals rights for the specific purpose of holding a developer and its developments to ransom, at surprisingly little cost and effort to those companies themselves.

What are the options for developers?

Developers who have acquired a site are increasingly facing the situation where another company owns the mines and minerals, meaning that the developer can only build on the ground and up, and can’t sink any foundations, or reduce the ground level, for example.  When the developer starts on site, the company notifies its ownership and threatens an injunction which would prevent any interference with the mines and minerals.  The company thereby effectively demands a ransom from the developer, to enable the project to proceed.

Developers have a number of options for responding to such mines and minerals ransom demands.  Some of these are explained below, but tailored legal advice will be required on a case-by-case basis, as specific facts and circumstances will affect the available options and will always need to be taken into account:

  • Agree to pay a negotiated sum to acquire the rights to the mines and minerals and proceed with the development with limited interference. 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, whilst the company may have threatened an injunction, would it actually issue court proceedings?  There is currently no clear case law on whether a company who has bought the mines and minerals is actually entitled to an injunction, and the theory is that such companies do not actually want to test the courts. Their business model would be utterly derailed if a court decision set a precedent that they had no right to stop development with an injunction, and at best may be entitled to [nominal] compensation [1].
  • Understand your legal position and your risk, and call their bluff. Apart from the risk of an unfavourable legal precedent, consider whether the company will actually be in the financial position to pursue an injunction, which involves it giving a cross-undertaking in damages.  That is, the court requires an injunction applicant to undertake to pay the developer for losses suffered in the event that the application fails and the court finds that the applicant should never have sought the injunction. The financial risk to the applicant company of the cross-undertaking in damages is potentially very significant where the injunction action delays the development of a site and the sale of houses, for example.
  • Seek a court declaration. Can the developer challenge the company’s ownership of the mines and minerals altogether, and/or whether the company’s rights or reservations actually extend to lawfully preventing the proposed development?  If so, the developer might be able to obtain a 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.
  • Consider whether, when you purchased the site, your solicitor advised of the mines and minerals ransom risk and whether you obtained indemnity insurance. Check whether any indemnity insurance policy applies and can assist in resolving the situation; and/or consider whether any advisory failings at the point of purchase might merit a solicitors’ negligence claim to counteract any losses suffered at the hands of the mines and minerals owner.

Practical advice

Whilst it may be possible to successfully deploy resolution options such as these in many cases, it does not follow that developers can treat injunction threats or applications lightly, nor can they simply proceed with building and selling and ‘business as usual’.  The real bite behind such companies’ business models is that, ultimately, to sell plots, developers need to be able to give good and marketable title.  Crucially, developers also 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 ‘whiff’ of an issue.

The best practical advice is therefore that ‘prevention is better than cure’.  Developers should ensure that they and their solicitors carefully check the Register of Title of all potential development sites 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 when it comes to the progress of development.

Walker Morris advises on all forms of developer disputes, both from a pre-emptive risk-management perspective and when it comes to resolving issues after they have arisen.  If you have any queries or concerns in relation to mines and minerals issues, please do not hesitate to contact us for further advice or assistance.

 

[1] Compensation in these circumstances (generally the starting point for any commercial negotiations) is likely to be reflective of what you would have had to have paid to acquire the rights in the first place.  The value of the mines and minerals themselves may also be relevant.  For example, if it would cost the developer more to ‘clean’ and use the excavated material than it would to buy-in new and clean material, then the notional price that a party would be willing to pay for the mines and minerals may be minimal.

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