Key takeaways:
- Whilst the sell off of surplus land compulsorily purchased by the government and/or local authorities may be seen as a potential investment opportunity, a procedure must be followed before those bodies can sell that land to someone else due to the Crichel Down Rules (“Rules“).
- Surplus land purchased through a Compulsory Purchase Order (“CPO“) must be first offered back to its former owners (or their successors) or to sitting tenants.
- There are various exceptions to the Rules including those relating to the type and character of the land, the nature of the new intended owner and even the length of time since the CPO but due diligence is key to avoid future challenges.
Why are we seeing a mass sell off by the government and local authorities?
There are currently two major reasons we are seeing public bodies sell off their land.
For starters, the government recently called time on the northern HS2 leg, leaving many parcels of land acquired for the project now no longer needed. The Department of Transport will have a considerable amount of costs to recoup given HS2 Limited is a non-departmental public body sponsored by it. More recently, various local councils have declared that they are in financial distress and many, if not all, are suffering from squeezed budgets. It has been reported that for 2024-2025 there is a £4bn funding gap for English councils and so the government is pushing these councils to sell off surplus land and buildings to help them balance their books.
Given the above, there is strong evidence to suggest that we will see a significant increase in the sale of land by the government and local authorities. It would be easy to anticipate the development potential of some of this land but it is important to consider the circumstances under which it was originally acquired by the government or local authority because certain categories of land will be governed by the Rules.
The Rules take their name from The Crichel Down Affair in Dorset, where the government, having compulsorily purchased land for military purposes during World War II, sought to sell the surplus land and failed to offer it back to the original owners first as promised. Public outrage, political scandal and a full enquiry ensued, leading ultimately to the creation of the Crichel Down Rules in 1954.
What are the Rules and why do they apply?
The Rules are non-statutory rules which regulate the disposal of surplus government land. They require that surplus land, acquired by, or under a threat of, a CPO must be offered back at market value to its former owners (or their successors in title). England, Wales, Scotland and Northern Ireland each have their own iteration of the Rules.
Once the government or local authorities decide to sell this land, they must first follow a set procedure to offer the land back to its former owner (or their successors) or determine that the disposal is not within the Rules. If you are purchasing land that fits the above criteria, it is important to complete legal due diligence to establish whether the relevant public body has followed the correct procedure.
One important point to note is that although the Rules are discretionary on local authorities in England, they are very heavily recommended, to the point where they should be considered to be mandatory. It is therefore vital to take caution when purchasing land from local authorities to ensure that the Rules are not being overlooked.
If the Rules are not complied with, there is a possibility that the disposal of land may be challenged by former owners on judicial review or human rights grounds. This can lead to a delay and uncertainty to both the disposing body and the prospective buyer and potential further problems should the buyer try to sell on. However, a successful judicial review challenge may not result in the land being offered back to the former owner; it might be that the relevant body is required to make their decision again in accordance with the Rules.
Can surplus land ever be sold to parties other than its former owners?
The short answer is, yes. The long answer is, it depends. Fortunately for developers and investors, not all land that has been compulsorily purchased needs to be offered back to its former owners. There are a number of exceptions which may be applicable, allowing the public body to put the property on the market for any interested party to purchase without first following the offer-back procedure.
Due diligence can both safeguard against future challenges and unlock opportunities
It is very important to carry out thorough due diligence before purchasing a property that appears to fall within the Rules. For example, it might be the case that the former owner (or their successors) cannot be traced. In which case, there are certain requirements under the Rules to advertise the decision to sell the land publicly. The buyer will want to ensure that process has been followed correctly. The buyer will want to see the report prepared by the public body to check whether it agrees with the decision on whether the Rules apply or not. The parties may wish to make any purchase conditional on the expiry of the judicial review period has expired.
Conclusion
If you are looking to purchase land from a public body, you must establish whether the Rules apply and ensure that, if so, they are dealt with. If you are a former owner of land that has been acquired for HS2 purposes or land that has otherwise been subject to a CPO (or a threat of a CPO) that might be likely to be sold, you should also consider seeking legal advice to ensure that the Rules are adhered to.