How can charities use ransom strips?

Continuing our series on capturing the development value of land left to charities as gifts in a will, this article explores the use of ransom strips and the advantages and disadvantages of employing them.

Ransom strips can be a useful tool where there is the potential for further development of adjoining land owned by third parties.  The purpose of retaining the strip is to ensure that, to the extent access to the adjoining land is required over the land held for the charity, the adjoining land owner may be obliged to pay a sum of money in order to gain access: By retaining a small strip of land which they need to pass over to their own site, you hold the key to unlocking the adjoining sites' development value: literally you hold a ransom position!

Ransom strips are most usually:

• retained on the edge of a parcel of land (at the point the remainder is disposed of);
• used where there is planning potential for the adjoining land (but this has not yet been exploited or fully ascertained);
• a thin strip of land, potentially as little as a metre wide running along the extent of the boundary concerned.

Ransom strips can also used in combination with other methods for protecting value such conditional agreements, options (and more rarely overages).

Some of the advantages of using ransom strips are that they:

• are simple and often do not require significant legal work;
• leave to the future all negotiations as to what the "ransom value" will be;
• do not need to specify the type of use or development that will be caught;
• don't depend on any complex title protection mechanism such as restrictions or similar;
• simply rely for protection on ownership of the land within the ransom strip; and
• can easily be transferred to a third party (either for convenience or for the requisite ransom value).

As with all methods of maximising value, ransom strips also have disadvantages, in particular:

• retaining ownership of a very small piece of land can be administratively cumbersome (due to any in-house requirements for review);
• protecting that strip from incursions can also be cumbersome (requiring on site checks and maintenance of boundary features);
• as with any land held, there remains liability (for example if someone is injured on the land); and
• if the adjoining land is not developed, it may be difficult to dispose of the strip, creating ongoing issues as above.

It is also important to ensure the Ransom Strip can be utilised to avoid being left with a small strip of land indefinitely.  For example, if the strip simply adjoins garden land with no real prospect of development, then the potential for disposal should be considered at the outset.

In a legacy context, since ransom strips may need to be held for long periods, personal representatives are unlikely to be willing to hold the land. As such, it will usually need to be held by one or more benefiting charities or by a trustee or trust corporation on their behalf.

With all of the above in mind, careful thought should be put to whether you can actually ransom the adjoining land (if there is potential for access from another boundary, this method is unlikely to be effective). Joanne Gardner, Senior Chartered Surveyor at Berrys also commented that “-sale contracts should also ensure access corridors are provided so the ransom can be effectively utilised in the future".

As with all methods of harnessing development value, considering the options with your expert team, including all the factors discussed in this article, will ensure you protect value but also avoid ongoing issues which may be a distraction and a nuisance to your charity in the future.

For more info, get in touch with Anna Phillips, Joanne Gardner or Mark Holloway.