Ransom Strips – How are they used?
James Burgess, a Partner in our real estate team, discusses the strategic value of ransom strips to sellers and promoters of land with development potential.
A ‘ransom strip’ is a strip of land which, due to its strategic location, can be used by its owner (let’s call them ‘Party A’) to effectively hold the owner of the adjoining land (let’s call them ‘Party B’) to ransom. The strategic value of a ransom strip is often derived from the fact that it controls access or the provision of services to the adjoining land. A ransom strip is most valuable when Party B is completely dependent on it in some way, for example if it provides the only means of access to the adjoining land. In such cases, Party B will be unable to develop its land without Party A’s cooperation; Party A can therefore effectively hold Party B to ransom.
A ransom strip tends to be carved out of a plot of land by Party A because Party A is keen to benefit from the uplift in value associated with any future development of the rest of the land in the plot or land adjoining the plot which may need to be accessed or serviced via the plot. Party A is generally either the seller or the promoter of the large plot of land; they each come to own a ransom strip in different scenarios:
Scenario 1: The seller – They are the original owner of the large plot of land. They sold the large plot of land with the exception of the ransom strip. Party B is the current owner of the adjoining land; they may not have bought the land from Party A as the land may have changed hands numerous times before being developed.
Scenario 2: The promoter – The ransom strip was sold to them by the owner of the large plot of land. Party B is either the owner of the large plot of land or a developer.
In both cases, Party A then needs to consider two issues:
Registration: Party A would be well-advised to register the ransom strip at the Land Registry. However, please note that for the Land Registry to register a ransom strip, it must have a minimum width of 0.3 metres.
Seperation: Party A needs to decide whether to keep the ransom strip separate from the adjoining land, for example by erecting a fence. If the ransom strip is not kept separate over a prolonged period, then Party B may gain rights over the ransom strip resulting in Party A losing title to it. Although title is harder to lose with registered land, compared to unregistered land, it is still possible. However, Party A needs to balance this risk with the practical implications of separation, such as the time and cost associated with constructing and maintaining a fence.
In both Scenario 1 and Scenario 2 the situation tends to be resolved in the same way:
- In the majority of cases, Party A will sell and therefore transfer ownership of the ransom strip to Party B in return for payment. In Scenario 2, a promoter generally receives payment in accordance with the terms of the land promotion agreement.
- Sometimes, however, Party A will merely grant Party B a right of way over the ransom strip, which is sufficient for Party B to develop its land, if for some reason Party A wishes to retain ownership of the ransom strip. This will of course be in return for payment.
Nonetheless, the specific terms of any agreement reached are entirely a product of negotiations between Party A and Party B. These negotiations will be driven by the extent to which Party A holds Party B to ransom and how much Party B wishes to develop its land.
A ransom strip can clearly play an important role in the development process. However, the fact that the terms of any agreement reached are open to negotiation makes a ransom strip quite a blunt instrument. Both Party A and Party B would have more certainty if they entered into an overage deed, which would run in parallel with the ransom strip, as the terms of the deed would govern the release of the ransom strip or any rights granted over it.
If you would like to find out more about the mechanics of ransom strips or overage, or discuss how they apply to your particular situation, then please do not hesitate to contact our real estate team.