UK: Community Inn-Terests - Can The Right To Buy Really Save The Village Inn?

Last Updated: 22 October 2008
Article by Gregor Duthie

The announcement last week that a bid by a community company to buy a borders pub has received lottery funding could have far reaching consequences. Gregor Duthie looks at the issues for communities and developers.

The Tweedsmuir Community Company announced last week that it had received lottery funding of £10,000 to complete pre-purchase requirements for its proposed acquisition of the Crook Inn, Tweedsmuir. Its progress will be watched with interest by the Friends of the Midmar Inn Community Company in Deeside. In both cases, the village inn was closed and the sitting landowner intended to convert the property to residential use (a single dwelling in Midmar; flatted conversion in Tweedsmuir). In both villages, community companies were formed and successfully registered their interest in the Community Body Register in the hope that they could acquire the inn and run it as a public house.

Limited rights for communities

However, in the case of the Tweedsmuir Community Company at least, it appears that they may have jumped the gun. A registered interest only grants them a right of first refusal in the event of the property being placed on the market and cannot compel the landowner to sell the property. At present, there are 55 active registered interests in the Community Body Register, with a further 4 applications pending. However, the Right to Buy is now approaching its fifth birthday and to date there have only been eight instances where the Right to Buy was actually activated.

What are the provisions?

The provisions for the Community Right to Buy are set out in the Land Reform (Scotland) Act 2003, giving a mechanism for small local communities (fewer than 10,000 people) to acquire an interest in land which is of significance to their community. The Act specifies that registrable land must be "rural" in nature and further legislation provides for a number of areas (generally large towns and cities) to be specifically excluded from the scope of the Community Right to Buy. The temptation for developers is to assume that, unless they are looking at a greenfield site in a remote location, they will be free from the effects of the Right to Buy.

However, it should always be borne in mind that "land" can include buildings; and "rural" can include anything which is "characteristic of country life" (according to the Shorter Oxford English Dictionary). The community's right to buy, therefore, not only covers the local village green but will also take in the bank, as with the former Clydesdale Bank acquired by Neilston Development Trust, and the local public house, as in the case of the Crook Inn and Midmar Inn. Any land which contributes to the life of the community may be caught.

Registering interest and the Scottish Ministers

If the Scottish Ministers decide to grant a community body's application for registration, this effectively creates a pre-emption right of first refusal on the property. Once an interest is registered, the landowner (or heritable creditor in possession) is thereafter prohibited from selling the property on the open market unless it has been first offered to the community body, by way of intimation to the Scottish Ministers. On receipt of an intimation, the Scottish Ministers will invite the community body to decide whether it wishes to exercise its right to buy and, if so, will arrange for an independent valuation of the property. The community body then have six months to make the necessary arrangements to complete the purchase. If the landowner causes the purchase to delay beyond the six months, then the Lands Tribunal may take remedial action to complete the transfer.

Effect on existing transactions

It is important to note that the right to buy cannot prevent completion of a purchase which is subject to concluded missives. A prudent solicitor will check the register at the time of concluding a purchase and any subsequent registration will not prevent the purchaser taking good title to the property. However, such subsequent registration may serve to prevent the purchaser completing an onward sale (or their heritable creditor realising their security) on the open market, in line with the restrictions outlined above.

A registration will remain active for 5 years, but will then lapse unless the community body apply to renew their interest in the site. If a developer is happy to landbank their site, the right to buy registration may lapse and they would be free to deal with the property on the open market as they see fit. If the community body persists and renews its registration, they must be granted first refusal. However, the landowner at least has comfort that the right to buy must be exercised for value according to an independent valuation – the developer may find his longed-for profit much reduced, but (fluctuating market valuations permitting) should not find himself in a worse position than he started.

Ultimately, the Right to Buy has no teeth until the sitting landowner attempts to dispose of the property, as the Tweedsmuir Community Company and Friends of Midmar Inn may find to their cost – they may have successfully registered a community interest against the now closed public house, but a community interest registration alone cannot prevent the owners converting the pub to a private dwellinghouse where no sale is in contemplation. If the imminent planning appeal in Tweedsmuir goes through and the proposed conversion is carried out, the community will of course be entitled to apply for renewal of their registration five years down the line, but whether they can show to the Scottish Ministers that a residential property of five years' standing is still of community significance looks increasingly doubtful.

Gregor Duthie is a solicitor at Biggart Baillie LPP who specialises in Commercial Property

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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