Ownerless property in Scotland

Could a new scheme in Scotland help local authorities unlock impact? Amy Entwistle examines the opportunities.

Ownerless property is a relatively common occurrence in the UK. Property can become “ownerless” in several ways – for example, through company insolvency, or because a deceased person has no family to take their assets.

Whilst there are various ways a property can lose its owner, there are also a whole range of property types that can enter into the category. While homes might be expected – particularly where personal estates are concerned – everything from industrial property to listed buildings or woodland can surface as ownerless.

When this happens, the property legally passes onto the Crown - legally known by the Latin "bona vacantia".   In England and Wales, it is the responsibility of the Treasury Solicitor to act for the Crown and manage ownerless properties. In Scotland, it is managed by the King’s and Lord Treasurer’s Remembrancer (KLTR).

It is often assumed that this process is immediate. However, for the KLTR, a risk assessment of the property must be completed to determine whether to “claim” the ownerless property for the Crown. The higher the risk, the less likely it is that the KLTR will make its claim. Often the formal claim is only made at the point at which a contract is in place for an onward disposal. For example, a house developer may have approached the KTLR to obtain a title transfer to an area required as part of a site assembly which has been established as part of the title due diligence as being in the name of a struck off company and therefore ownerless. KLTR does not own or manage properties in the meantime.

When claimed, these ownerless properties have historically been then sold on at market value and with a clawback or overage agreement in place - often with a  security over the site - so the KLTR receives a further payment if within an agreed period, usually 10 years, the property is redeveloped or sold on for a significant profit.  This process enables an ownerless property to be utilised, but also creates a revenue stream, with added protections against windfall gains to further protect the public purse.

What if, instead of selling these properties at market value to raise public funds, they could be transferred to public sector organisations or community groups and used for community benefit? In Scotland, this question is being asked right now.

At the end of last year, the KLTR put forward a consultation on a new scheme called the Ownerless Property Transfer Scheme (OPTS), which would enable the KLTR to assess ownerless properties not only for financial value but also for community value.

Perhaps a local community is desperately in need of a new medical facility. Or maybe a town simply lacks adequate recreational spaces for families. Through the new OPTS, the KLTR would have the freedom to recognise the value of local benefit, so that, where there is a clear case for community benefit like in these examples, the KLTR can transfer the property at a nominal sum rather than market value. 

The consultation also notes that, by transferring the property at a nominal sum, it could bring higher risk properties – such as those with contamination or subsidence – into use by providing a stronger financial incentive to public sector organisations to take ownership of, and invest in, properties that they might otherwise be reluctant to oversee. 

In its consultation the KLTR presents this scheme as a step change in the public sector’s approach to valuing property. It also notes the collaboration that will be required across organisations to make the scheme work as it is intended.

To transfer the land, the consultation proposes a process where the property is brought to the KLTR’s attention by a third party such as a local authority, public body, community body or individual. It would then be referred to the Scottish Government to be offered to public bodies through the "trawl" process, which means that if any public bodies are interested in owning the property they have a right of refusal.  Otherwise, the local authority where the property is located would then be offered the opportunity. In either case it would be transferred on a cost recovery basis and then either retained by that public body or local authority or transferred to a community body.   There is an alternative process for a direct transfer by KLTR to a community group which is supported by a public body or local authority.

If no public body, local authority or supported community body were interested in the property – a situation the KLTR anticipates will arise most with higher-risk buildings – KLTR will then either disclaim the property or can put it to sale at auction.

For local authorities, the OPTS could provide a means to solving logistical property issues. In its consultation paper, the KLTR highlights several pilot case studies where it has tested OPTS. One example was of the City of Edinburgh Council (CEC) seeking to take ownership of a strip of land in an area where it wanted to build housing. Half of the housing would be provided as affordable homes, generating a clear benefit to the community. And because it was ownerless, the OPTS enabled KLTR to transfer the land to CEC without requiring CEC to pay market value.

This is merely one such example of how OPTS could benefit local authorities and simplify their ability to acquire property that has fallen to the Crown. Crucially, it offers local authorities the chance to acquire these sites without paying a market value price tag to another government body. While the property would no longer generate the financial return for the public purse of the KLTR, it prevents public spending by the local authority at the same time – reserving their budget  for investment in the redevelopment of the property instead.

The OPTS consultation closed at the end of last year and the final framework for the scheme is yet to be confirmed. Scottish local authorities should begin to take note of ownerless properties that may benefit their communities. OPTS might provide a welcome solution to unlock opportunities.

Amy Entwistle is a property partner in Morton Fraser’s public sector team.