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Sitting on a goldmine


Developers need to obtain a good and marketable title to their development site to pass on to plot purchasers and their lenders. Where a third party owns mines and minerals or has rights to mine beneath a site, this can cause two potential legal issues:

  1. The rights may be capable of being exercised in such a way as to interfere with the development or the use of the buildings once constructed, such as a right to disturb the surface of the land (although this is relatively uncommon);
  2. The carrying out of the development may constitute a trespass against the title of the person who owns the mines and minerals, if the development works interfere with the mines and minerals.

There may also be a risk of structural issues such as subsidence from old mine workings.

Many lenders will consider that an exception of mines and minerals from the title constitutes a risk and therefore finance may be more difficult to obtain.

The law

Under common law, the presumption is that a freehold landowner owns everything from the surface down to the centre of the earth including any unworked mines and minerals (key exceptions are gold, silver and petroleum in its natural state which belong to the Crown, and coal which is owned by the Coal Authority). However, it’s common for mines and minerals to be excluded from the surface landowner’s title, usually by way of a separate transfer or old manorial rights where the land was formerly part of an estate.

Many mining and mineral extraction rights can no longer be exercised due to planning restrictions or the minerals being inaccessible (for example where the land above has been redeveloped). However, there remains a risk that a minerals owner may allege trespass if there is any interference to the seam of minerals from excavation or the foundations of a development. This could result in a compensation claim for trespass, an injunction to stop work being carried out, or a ransom payment being demanded on completion of the development. This is more likely where land is on or close to an estate, as seen in the case Countess of Lonsdale v Tesco [2010]. Tesco had acquired a development site in Cumbria for £18million and, in an effort to stop the development, the Countess invoked her manorial rights to minerals beneath the site. This resulted in the sale contract being revoked and caused significant loss to Tesco.

Even completed and long-standing developments are not immune from future claims by owners of mines and minerals rights which could necessitate the alteration or demolition of buildings.

What can you do?

When purchasing a site for development it’s very important to check for reserved rights to mines and minerals as part of the initial property due diligence. These rights are often obvious from the title register, but in other cases the existence and extent of the rights may only become apparent following further investigation (for example they may be registered under a separate title which can be revealed by a search of the index map at the Land Registry, and appropriate enquiries can be made of the seller as to the nature of the rights and whether they have ever been exercised). It may be the case that the rights only concern minerals below a certain depth and the risks can be mitigated by ensuring that excavations are only carried out above that depth.

However, the most common solution to this problem is to obtain indemnity insurance as it is generally quick and relatively inexpensive to obtain (although the availability and cost of insurance will always depend on the circumstances in each case). Insurance will not prevent a minerals owner from asserting their rights, but it gives some protection to the developer in respect of any potential claims. It is important not to approach a rights owner for consent to the development or to negotiate a sale of the minerals rights as this may result in an outright refusal or a demand for a ransom payment. An approach to the owner is likely to render the site uninsurable in respect of the reserved rights.

A developer may also need to provide some comfort to plot buyers and lenders in terms of the structural stability of the site. A desktop environmental search and any relevant mining searches will provide an indication as to the risk of ground instability from underground works, from which a decision can be made as to whether further assessment, remedial works and/or indemnity insurance will be necessary.

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