Ransom Strips

What is a ransom strip

Otherwise known as a control strip, although it doesn’t have to be a ‘strip’ of land. Can be a larger parcel. They key is that it is a bit of land over which rights are needed by a third party who does not control it. Normally found in development scenarios e.g., an owner wants to develop a parcel of land, but doesn’t have a suitable vehicular access from the land to the public highway, so can’t develop without the involvement of third-party land. Could also be where a right to lay services over a piece of land is required and don’t exist.

Why are ransom strips important

Because land without a viable access could be undevelopable, and therefore the values of the land could be a very much lower than it would be with an access. For example, land may have access via a right of way for agricultural use only over a narrow farm track. Development on this land could be impossible without a much improved and widened access to the highway, but the owner of the land has no way of obtaining the improved access other than negotiating with a neighbouring landowner. If he obtains access his land becomes much more valuable and therefore it is worth negotiating to obtain it.

How are ransom strips valued?

This depends entirely on the circumstances, and not all ransom situations are the same, in fact they are generally all different. Very rarely do you have a ‘classic’ ransom situation where there is only one option available to the developer. Usually there are other options, which may be less attractive but still viable, for access e.g., other landowners/other routes for access, reduced size of development scheme not needing the same scale of access etc. A major factor in negotiations is the financial position of each party. If the holder of the ransom land is keen to obtain a financial benefit from it and is keen to get a return from it, they may be more willing to reach a deal rather than let negotiations reach a stalemate and go nowhere. If they already have plenty of money and are willing to sit it out, they can adopt a more bullish approach to negotiations. A developer will generally explore all options and will want to tell the landowner they have a plan B, they may indeed have a viable plan B but not always.

What is Stokes v Cambridge?

This was the classic ransom strip legal case (Stokes v. Cambridge Corporation (1961) 13 P & CR 77) and was a case in the Lands Tribunal in relation to a compulsory purchase. ‘Stokes v Cambridge’ normally comes up in negotiations on ransom situations, and is normally incorrectly cited as having established a principle  that the holder of the ransom strip is entitled to one third of the value of the development land in return for granting access, whereas in fact the circumstances of the Stokes case were that in granting access for the development, the owner of the ransom land (Cambridge Corporation) also thereby released some land of their own for development, so there was an incentive for them to agree to a lower ransom payment. The commentary in the case actually indicates that up to 50% would be fair and reasonable, depending on the individual circumstances.

In each case therefore the ‘value’ of the ransom land can be very different, depending on the all the factors of the case, including:

• The financial positions of the parties
• Whether either party stands to gain in another way by the release of the ransom

A key factor to consider in larger and more valuable cases these days, is that the use of compulsory purchase order powers by local authorities to facilitate development is becoming more prevalent. There is a danger in large scale developments that the LPA will choose to go down this route, or threaten to, if negotiations between landowners are at an impasse.

A working example of ransom strips

Client owns business premises with frontage to the road. Landowner owns 30 acres of land behind which is accessed via a narrow track wide enough for farm vehicles. Landowner has another access nearby but not suitable for a development of more than 10 houses. Developer has option on landowner’s land and comes to our client to negotiate for access.

Client agrees to sell existing business premises to the developer to facilitate access, in return for provision of larger new business premises on the development land, plus a cash payment.

Factors affecting negotiations:

• Client’s current premises outdated so interested in the idea of having new purpose-built premises on the development site
• Build cost/set up of new premises needed to be factored in, from a timing perspective and impact on the continuation of our client’s business
• Developer could develop up to 10 houses on the land without needing our client’s access at all
• Local planning authority very keen to see the site come forward so background possibility of compulsory purchase of our client’s land.

The costs

In recent years, the stress test of this principle has been stretched on numerous occasions and valuations are now often at 50% of the uplift. In reality, the owner of the strip has the developer over a barrel and can charge whatever they think they can get away with.

When looking to purchase land, it is imperative to review the land around it. On the assumption that the adjacent land is registered with the Land Registry, it may be clear from the title documentary if the strip is a ransom strip or not. If the land or the strip of adjoining land is not registered, a site visit and further investigation with a qualified and knowledgeable professional would be imperative.

What to do if a ransom strip is discovered?

If you discover a ransom strip in your investigations or within your planning process, before the purchase or early on in the process, the buyer may be able to negotiate with the landowner on price. However, in the event of a strip being identified after acquisition of the development land, it may be necessary to involve arbitration if the owner is reluctant to agree on a sale price, to sell at all or to grant rights. In exceptional circumstances, local authorities may issue a compulsory purchase order and the owner must sell at a ‘fair and reasonable’ compensation level. All of which is costly both in time and money.

 How can we help?

If you are a landowner looking to sell land for development or are considering an option or promotion agreement, please contact our rural professional team as early as possible in the process. If you are a developer facing the challenge of a ransom strip, we are also able to support you through negotiation. We have provided numerous land owners and developers with solutions that are win-win with everyone maximising their profit rather than just lining the pockets of the authorities or courts.