Property Law and Practice Part 4: Sales of Part

Sales of part are far more complicated than straightforward sales of the whole.

Splitting up a title into two complete and functioning titles of their own requires careful thought and consideration and, unfortunately for those who disliked land law, an appreciation of easements, restrictions and other encumbrances.

Titles are split for many reasons: selling off parcels of land for development, selling one house from an estate, buying a little bit of the neighbour's garden to build an extension, or splitting a house into flats.

Each reason brings its own set of considerations and complications. To achieve a successful split, the seller grants or reserves easements, reservations and covenants (generally referred to as encumbrances), which are drafted into the sale documentation.

The property lawyers involved in a sale of part need to ensure that the land being transferred, or the land being retained, is accompanied by the necessary encumbrances so that it can be properly used and enjoyed. I like to group these into the following categories:

• Necessary
• Consequential
• Client requirements
• Implied

Necessary encumbrances

Necessary encumbrances are those rights that are required for a piece of land to function and include matters such as access, drainage, support and utilities.

It is crucial that a lawyer identifies these rights and incorporates them into the sale documents. Without key rights, property owners may find themselves forced to pay over the odds simply to be able to use their land.

In terms of access, this is often referred to as a 'ransom strip': a small strip of land preventing access to a property, effectively turning it into an island. The property owner may then be forced to purchase that strip for many times its market value. If you are responsible for creating a ransom strip, you had better be giving your insurers a ring!

Think about what the property is, what it will be and what it might be used for.

I find the best way to identify these encumbrances is to think about what the property is, what it will be and what it might be used for. Think about everything necessary for that property to be occupied or used: support, air, drainage, water and utilities. If your client has a particular use in mind, consider what rights will be required to make that a reality.

Also think about how the land might be used in the future.

It may be a field now, but could it one day be developed? Think about the smaller details as well. If there is a new boundary line, should there be a fence?

Consequential encumbrances

Consequential encumbrances are those that arise from the necessary rights.

For example, the buyer is granted the right to use a drainage pipe that crosses the seller's land:

-            Who is then responsible for maintaining the pipe?

-            Who will repair it, and on what basis?

-            Who pays if it leaks?

If the buyer is permitted to repair the pipe, they will also require the right to enter the seller's land, together with whatever machinery and workers are required, excavate the land and replace the pipe.

Recording these details clearly should help prevent disputes later. They add substance to the necessary rights and govern the ongoing relationship between the respective landowners. The bottom line is simple: if you use it, you pay for it.

Client requirements

Client requirements are the encumbrances that the client wants but which are not essential for the use of the land.

Good examples include restrictive covenants. For example, a seller may wish to ensure that the buyer can build only one house for a single family on the adjoining land.

The covenant creating that restriction is not necessary for either party to use their land, but it gives effect to the client's wishes. It may be that the client has not even considered these issues, so remember to ask questions about their intentions.

Just because the seller seems like a stand-up person does not mean they will not sell the house at the bottom of the garden to a mechanic who runs a home business.

Implied encumbrances

The final category is implied encumbrances.

If they are not expressly dealt with in the sale documents, Section 62 of the Law of Property Act 1925 may imply certain rights that are granted or reserved. In addition, the rule in Wheeldon v Burrows implies those rights that are 'continuous, apparent and necessary to the enjoyment of the property at the time of sale.’

In simple terms, this means that if you have overlooked something crucial that is being used by the land sold at the date of transfer, those rights may be impliedly granted. It provides a basic safety net, but it is far better to deal with these matters expressly. Most transfers will therefore contract out of the Section 62 provisions so that both parties are certain about what is, and is not, included in the transfer.

Another useful reminder from land law is that you must not forget that positive covenants (covenants requiring someone to do something, such as paying maintenance costs or maintaining a boundary) cannot generally be enforced against successor owners.

Drafting

Drafting is extremely important when it comes to encumbrances.

Hopefully, your course will provide some useful precedents, but it is always worth looking elsewhere. PLC has some excellent precedent sale documents, and the Encyclopedia of Forms and Precedents contains a wealth of useful drafting provisions.

For the examination, however, you will only be expected to know what has been covered during your course. If you come across any particularly useful drafting material, keep it, as you never know when it might prove useful.

I should point out that, in practice, encumbrances are often the subject of negotiation between the seller and the buyer. You will be taught to obtain the best possible outcome for your client and encouraged to draft the transfer as comprehensively as possible.

However, it often comes down to weighing up what the seller is willing to agree to against the price the buyer is prepared to pay.

You should also bear in mind how much your client is willing to spend on legal fees. Someone purchasing a small strip of additional garden from a neighbour does not require the same level of drafting as a developer purchasing land for a residential estate.

Practical points

There are also many practical aspects to sales of part, particularly in relation to the transfer documents and the Land Registry forms.

The land being transferred must be accurately identified; you cannot simply refer to a title number. A compliant plan will therefore be required. To be accepted for registration, the plan must meet Land Registry requirements and be signed; always by the seller and, where the seller is reserving rights over the land being transferred, also by the buyer.

You should also ensure that the plan is correctly referred to in the property description and that any encumbrances affecting only part of the land are clearly identified on the plan and referenced in the transfer.

Finally, do not forget the mortgage. The seller's lender will need to consent to any sale of part, and the appropriate documentation must be completed before registration.

Final thoughts

I think the best way to approach a sale of part is to put yourself in both the seller's and the buyer's shoes and imagine what you would need and want from your respective pieces of land. If you ensure that your client can do those things, you should be well on your way.

Next week, I will be looking at the dreaded topic of insolvency. I hope my experiences from my seat will make it more interesting.

I promise it is much better in practice than it was on the LPC!