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117. Part 8 of the draft Bill is concerned with options to acquire property. Sometimes when property is sold, the seller makes it a condition of sale that he would in certain circumstances have an option to get the property back. The main types of conditions of this kind are pre-emption, redemption and reversion. Pre-emption entitles the holder to first refusal in the event of the property coming up for sale. The decision by the owner to sell is the only thing that can trigger pre-emption. Redemption does not depend upon the decision of the owner. It is a right to repurchase triggered by a specified event such as death of an owner or the granting of planning permission. Reversion is similar, but does not necessarily require the payment of money or value.
118. Rights of pre-emption, redemption and reversion can be, and are, imposed as real burdens. This allows the obligation to run with the land, rather than being simply a contract between the original parties, which could cease to have effect if the property changes hands or the holder dies. The Commission considered prohibiting pre-emptions from being real burdens, and reducing them to the nature of contracts. However, they concluded that this would achieve little, and might even prove counterproductive, leading to strengthened contracts stipulating more severe forms of pre-emption. Section 7(4) of the draft Bill states that only the owner of a benefited property may enforce a right of pre-emption.
The Executive agrees that a pre-emption can be a real burden.
Redemptions, reversions and other options
119. Section 3(5) provides that redemptions and reversions should not be constituted as real burdens in the future, though existing rights will survive. The Commission does not feel that it is appropriate for successors of the original owner to be bound to lose property, sometimes without compensation. These rights can still be constituted in the future as a matter of contract.
The Executive agrees that redemptions and reversions should not be created as real burdens in future.
Pre-emptions limited to one offer - sections 78 to 80
120. Most pre-emption rights are restricted to a single chance to buy. This restriction affects all pre-emptions created in feudal burdens, and all other pre-emptions created after 1 September 1974. Either the holder of the right of pre-emption must accept the offer (normally mirroring the terms of a bid from a third party) or the pre-emption will be lost.
121. The Commission think that this offer back procedure causes unnecessary delay in many cases. Typically, a third party puts in a bid for the property, only to discover that the property has to be offered back to the pre-emption holder. The holder generally has 21 days to accept or refuse. This delay, or the prospect of it, can result in the third party losing interest. Alternatively, the holder may be asked informally, for example at the stage when the property is being marketed, if he wishes to exercise his right. If he indicates that he does not wish to do so, then the pre-emption may survive the sale as no formal offer has been made to him. Section 79 of the draft Bill permits the owner of the burdened property to obtain an undertaking, possibly subject to certain conditions, from the holder that the pre-emption will not be exercised for a specified period. If the sale takes place within the specified time, then the pre-emption would be extinguished. However, if the sale does not occur then the pre-emption would revive after the specified period.
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Discussion Point 27 The Executive believes that the provision for a pre-sale undertaking for pre-emption rights would be a useful reform, which would make it easier for parties in a property transaction. Do you agree? |
122. If the deed creating the pre-emption does not set out on what terms the offer is to be made to the holder then section 80(4) of the draft Bill requires that the offer shall be made on such terms as are reasonable in the circumstances. The intention is to avoid the current situation where the holder is presented with an offer containing terms which a reasonable purchaser might wish to qualify. At present, the holder must usually either accept or reject the offer without qualification. The problem is that there may be genuine disagreement over what constitutes a reasonable term.
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Discussion Point 28 Do you agree that an offer to a pre-emption holder should be made on reasonable terms? |
Other pre-emptions
123. Non-feudal pre-emptions made before 1 September 1974 are not restricted to a single offer. The Commission envisage that the general proposals for burdens should reduce the extent of these rights. In addition, section 16(2) of the Bill provides that any sale in breach of a right of pre-emption will extinguish the pre-emption within five years by virtue of negative prescription. The effect of this is that where the holder of a pre-emption has not exercised his right, and the property has been sold, he would lose his right 5 years after the sale.
The Executive agrees with the provision in section 16(2).
Reversion under the School Sites Act 1841
124. The 1841 Act applies to sites granted for educational purposes by private individuals, often without payment and now held by education authorities. It provided that the land was to be held by the grantees only for as long as it was used for the original purpose. This reversion reduces the marketability of school sites, and can result in misfortune for subsequent purchasers of a disused site. There may be difficulties in ascertaining who has right to the reversion if the original benefited land has fragmented and also whether it is the original benefited proprietor's personal successors or those who now own the benefited property who have the right. The reversion probably does not affect any site resold before 1 January 1947.
125. Section 82(3), (4) and (6) provide that in any circumstances where payment is due, the claimant will not receive the value of any improvements that have been carried out on the property. Where the land is still in the possession of the local authority, and has ceased to be used as a school, the holder of the reversion may elect to receive either compensation for the value of the site or a conveyance of the land, after paying to the authority a sum to reflect improvement value. This is a reform of the current position, where it is thought that the holder is entitled to the entire property. Where a third party has purchased the property, the education authority, not the third party, will pay the compensation.
126. Section 83 makes the obligation arising under the right of reversion subject to five year prescription.
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Discussion Point 29 The Executive supports the conversion of reversion rights held under the School Sites Act into claims for compensation. Do you agree? Does the provision on prescription present any problems? |
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