Rural property - Buying and selling: pitfalls and problems

Given that rural property transactions involve land, the unwary may consider that they are sufficiently similar to commercial and residential transactions to enable them to deal. However, the commercial or residential conveyancer should beware, since ignorance of the differences could have serious consequences. This article highlights just a few of the pitfalls and problems which arise in transactions involving rural property.

Access issues

In all rural property transactions a key issue is sufficiency of access – not just for the existing use but also, in some cases, for future changed use. That means asking your client what they intend to use the land for – they may not realise it is important. If it is for commercial forestry, wind farming or other development, it may be necessary not just to look at the title but also at the sufficiency of public roads to be used to bring turbine parts or timber to or from the site, as well as an awareness of the need where the roads are narrow for servitudes to allow overhang.

When acting for a lender, it may be dangerous to rely on the view of the purchaser’s solicitor regarding sufficiency of access – his client may not be worried if in practice he anticipates taking vehicles from an adjacent track or land already owned. Such an access will be of no assistance to a lender who calls up a security.

Of course, a servitude for one piece of land may not allow access to another, even if both land holdings are held together. This is a common pitfall in forestry transactions where a seller may have held several woods together and constructed timber-hauling routes to serve the woods but where the original servitude was for one wood only. If a purchaser buys all the woods served by the access, he may overcome this pitfall at felling time by “double handling” (unloading the timber in the first wood and reloading it to remove from that wood to the next), but that will not be available to a purchaser who does not buy the connecting wood, or to a lender calling up a security over the wood without a suitable access. Indeed, it may not be something on which any purchaser wishes to rely, given the additional cost and expense of such a manoeuvre.

Another common pitfall arises where a security is being granted over part only of a farm or estate, because you cannot create a servitude in a standard security. Such cases arise frequently where a security is being granted over cottages on a farm or estate. The solution in these circumstances is likely to involve the landowner recording a deed of conditions creating the servitude of access.

Water and drainage

The need for servitudes for water and drainage gives rise to similar problems. These must be properly constituted in the titles. For water these must include rights not just for the pipe but also for the source (with appropriate provisions to protect the source from pollution by fencing), and for drainage they must include rights for pipe, outfall, septic tank or equivalent. In both cases, there must be rights of maintenance, repair and renewal. Nowadays there is also a need to ensure proof of compliance with the Private Water Regulations (Scotland) 2006 and the Water Environment (Controlled Activities) (Scotland) Regulations 2005.

Tenanted land

Agricultural tenancies

Whilst the Agricultural Holdings (Scotland) Act 2003 may have provided some comfort where agricultural tenancies have been created since the coming into force of that Act (27 November 2003 for the relevant section), there are still pitfalls for the unwary. Unfortunately the most dangerous situation is where the landowner has entered into an “informal arrangement” which he happily says is “not a lease”. Such an arrangement entered into after that date is, at worst, likely to default to a short limited duration tenancy for five years. However, if the arrangement commenced prior to that date, it could have resulted in a 1991 Act tenancy with full security of tenure being constituted.

Unfortunately, if a 1991 Act tenancy is in place, a renunciation by the tenant (if one can be obtained) may not give sufficient comfort to a purchaser or seller that vacant possession will be deliverable on the date of entry. The only safe course in such circumstances may be to wait and see if the tenant does, in fact, remove.

The pitfall to avoid is failure to realise that there is a tenancy in place. The consequence of that failure, for the seller, may be contracting for an entry date that cannot be delivered. For the purchaser or lender, the failure may result in paying the price or lending money where vacant possession of the property purchased or secured may never be achieved.

What makes this particular problem such a trap for the unwary is that the solicitor cannot identify that there is a problem by examining written leases. Rather, they must ask the right questions to determine whether or not there is a tenancy which attracts security of tenure. The safest course for any property lawyer who does not regularly deal with agricultural holdings is to refer the matter to someone who has the appropriate expertise and experience.

Residential tenancies

A failure to look at residential tenancies carefully, resulting in a contract to deliver vacant possession which cannot be delivered, is a common pitfall. An error in constitution of a short assured tenancy can be serious for purchaser, seller or lender. Problems are most often encountered where the “do-it-yourself” owner or letting agent has failed to serve AT5 notices prior to occupation being taken, or has done so but has omitted to retain copies and evidence of service. However, in some cases the lease has been granted by a party other than the owner (for example, in the name of the wife even though title to the property is held by the husband), so that an assured tenancy has been created; or notice provisions have been poorly drafted so that vacant possession cannot be obtained at the intended date of entry.

Crofts

Acting for purchasers, sellers or lenders in relation to land which includes crofts is fraught with possible pitfalls. If so doing, a thorough knowledge of the crofting legislation, crofters’ rights (including their rights to diversify) and of common grazings is absolutely essential if your client is to be able to proceed with a proposed development.

And more…

Other pitfalls and problems which might arise in relation to rural property transactions include changing boundaries due to watercourses; transfer of engagements; issues relating to grants and subsidies and compliance with applicable schemes such as the Scottish Rural Development Programme and Woodland Grant Schemes; sportings; third party rights; and environmental contamination (farm dumps and sheep dips being likely causes!). Unfortunately there is not room to cover all these here.