Alasdair Fox and Alastair McKie discuss the impact of legal change.
Devolving political power is a pan-European phenomenon, with powers over increasingly numerous areas of activity being granted to local or regional bodies. Within the UK, we have seen devolution for Scotland, the establishment of the Welshe Assembly and the possibility of regional government in England. Where devolved powers include competence over aspects of land management, or sale and purchase of holdings in land, risks may arise from changes in the legislative or regulatory environment.
Although we focus here essentially on the Scottish property scene under a Scottish parliament, many of the driving political agendas under devolved government, such as greater community involvement in decision making and environmental conservation, are themes common to many property markets throughout Europe. These agendas generate their own particular risks. Scotland is a good example of how such risks may manifest themselves.
The manifesto commitments of the Scottish political parties to reform land law have been put into practical effect with the abolition of the feudal property system soon to become a reality. The right of access to the countryside and the establishment of a community "right to buy" lie at the heart of currently proposed land reforms.
Added to these ideas are the newly-established contaminated land regime, the increasing emphasis placed on conservation and the impact of human rights legislation. What landowners can do with their property has never before been subject to so much public scrutiny or proposed change. Inevitably, there are some risk implications for property owners, investors and lenders in a devolved Scottish property market.
The Scottish Parliament is empowered to legislate on many key areas of economic life, such as property, environmental and planning law. It has been particularly active in these areas. There is a desire for reform and to he seen to make a positive difference to life in Scotland.
In passing, it is worth noting the procedural differences between Scotland and UK government in making new laws.
The Scottish Parliament emphasises consultation. Interested parties have the opportunity to make representations and can challenge the competency of Scottish legislation in the courts. Those with significant property interests often overlook this.
The Scottish Executive introduced a White Paper in July 1999, outlining its proposals on land reform. It is due to issue a consultation paper in February, with legislation to follow in September 2001.
Right to buy
Rural communities are to be allowed to register their interest in land where they live or work. Registered communities will be given time to assess whether or not they wish to buy such land in the event of the property being marketed for sale. If they do, they will have the right to buy, overriding private purchasers, and a government official will fix the price.
So far, the extensive consultation and criticism of the proposed community right to buy centres upon the definition of "community". It has proved difficult to produce a workable definition so that the concept applies sensibly in practice. But the strong political pressure to re-balance the landlord-tenant relationship in rural environments will certainly result in changes. These may well affect the marketability, value and management of certain properties. Such changes could well prefigure similar moves elsewhere in the UK and Europe.
Right of access
In Scotland, there has always been a general tolerance of people moving through the countryside and using it for leisure pursuits. The proposed legislation goes further, aiming to create a right of responsible access to all land in Scotland. including enclosed agricultural land as well as open and hill ground and inland water, for informal recreation and passage.
The right will not extend to buildings and their immediate surroundings, but it is not clear how far this goes. Also excluded are farm steadings, except where there is an existing right of way, and areas already proscribed by law, largely to safeguard public safety, including quarries and railway lines.
The right of access will not be totally unfettered. It would not apply where crops are being grown, trees are being felled or deer stalking is being carried out. The buzzword is "repsonsible access. With this in mind Scottish Natural Heritage is required to prepare and promote a Scottish Countryside Access Code.
Again, the proposals towards giving a right of access to land come as a response to a perceived popular desire, which is by no means confined solely to Scotland.
Landowners' concerns include issues such as public liability (that is, the liability of occupiers of property, including land, for harm done to others whilst on that property), increased vandalism, litter, poaching and theft. There is currently reluctance to create new powers to deal with problems related to the probable increase in numbers accessing the countryside.
Managing the potential risk of new or likely land reform legislation raises particular problems for professional advisers. They need to advise parties at as early a stage as possible of the effect on a transaction and, in particular, the impact on land value. Therefore, they must closely monitor legislation as it passes through Parliament. It helps, as is the case in the Scottish Parliament, if legislators are accessible and amenable to consultation and debate.
The contaminated land regime in Scotland came into force on 14 July 2000. Although its wording is similar to that found south of the border, its application will differ. The supervising body, the Scottish Environment Protection Agency, may have a wider role to play than the Environment Agency.
Local authorities must identify sites which fall within the definition of "contaminated land", i.e. where there is the threat of significant harm to land, or pollution to controlled waters, by reason of substances in, on or under land. Through the "suitable for use" approach, certain undeveloped land may not fall within the regime if left undisturbed. However, if it is opened up for development, it may well release substances that could cause harm or pollute watercourses.
Once land has been identified as being contaminated, the local authority or Scottish Environment Protection Agency has to identify the appropriate person to remediate the site. In the first instance, this would be the polluter, or person who caused or knowingly permitted the contamination to take place. If the polluter cannot be traced, remediation falls to the current owner.
This will affect property transactions in many ways. Purchasers will seek warranties/indemnities from sellers who are proving reluctant to give such guarantees. Sellers
The contaminated land regime has not yet had the impact expected. Local authorities have 15 months from the commencement date to prepare a strategy document. Only then, can we expect to see enforcement on a wider scale.
The Scottish Executive must identify and designate Special Areas of Conservation and Special Protection Areas. Landowners should be aware of the very restrictive effect that such designations may have on development opportunities.
There is a powerful presumption against development adversely impacting on protected conservation interests, which probably rules out mineral extraction or windfarming proposals. There are no statutory rights of appeal against designations and compensation is very limited. It is questionable whether the existing procedures comply with the European Convention on Human Rights.
Human rights and planning
The planning process is the most important means by which land use is regulated. It therefore plays a pivotal role in promoting economic development and determining land values. The most significant planning issue at present is how to deal with the impact of the Human Rights Act 1998.
Four recent English High Court cases have established that a minister cannot be both policy maker and decision taker in a planning application. Establishing an independent planning appeal body would resolve the matter, but this means amending the Planning Acts. Until this happens, decision making will probably be put on hold, with obvious economic consequences.
There is also a growing view that third party rights of appeal are inevitable. The investment in winning a planning permission can be considerable. Developers will not relish being advised that a hard won planning permission for a project already under construction may still be subject to a human rights challenge for a period of one year after permission has been granted.
Managing the risks of a human rights challenge in a planning/property transaction will involve obtaining as much information as possible about the planning decision in question, focusing particularly on who has objected to the planning permission and how their objection was considered in the context of the decision making process.
While economic forces will continue to be the key factor in determining land values, all landowners and professional advisers should be aware of the dramatic changes that are occurring in property, environmental and planning law in Scotland. Other legislative environments are likely to reflect such changes, and the management of land risks needs to take this into account.
It is clear that the risks involved in owning or dealing with property in a fast-changing legal environment are many and varied. The consequences of getting it wrong can be damaging both to reputation and financially. The political appetite to tackle perceived wrongs may frighten some, but opportunities through investment in property remain. The key is to be aware of possible difficulties and plan for the future by assessing the risks for the particular property in question and developing a strategy to provide the solutions.
As well as requiring the mainstream property services provided by lawyers, surveyors and accountants, almost all major property transactions will require specialist advice from the disciplines of environmental and planning law and parliamentary and public affairs. Once the property investment has been made, the issues become broader. Monitoring the Parliamentary process and contributing to the political debate become increasingly relevant as a means of protecting or promoting one's interests.
In such a context, the risk manager needs to be confident of the capabilities of those upon whom the organisation is relying for advice. The key will be whether the adviser, be it individual or organisation, can field the new expertise needed, and can keep that expertise current. The challenge for the specialist team providing that advice will be to help formulate a strategy for dealing with the new issues, as well as provide the traditional services associated with the property market.
Alasdair Fox and Alastair McKie are partners of Anderson Strathern WS, 48 Castle St, Edinburgh, EH23LX. Tel 0131 220 2345, E-mail: firstname.lastname@example.org