Mineral Reservations and Your Development: Can Title Indemnity Insurance Help?

You have found the right site and are ready to move forward with your development. Then a title review reveals that someone else owns the minerals beneath the land.

Mineral reservations are a common feature of Scottish titles and can have significant implications for the viability of development projects. 

Understanding the issue early can help avoid delays, additional costs and unexpected risks later in the project.

What does a mineral reservation mean?

In Scotland, ownership of minerals can be separated from ownership of the surface land.

As a result, a developer may own the land itself but not own the minerals beneath it. These minerals may include sand, gravel, clay, coal or other commercially valuable materials.

Many developments require excavation, piling, drainage works, cable installation or other groundworks. Where minerals have been reserved in favour of a third party, those activities can raise legal and commercial issues that should be considered at an early stage.

Why does it matter?

A mineral reservation does not necessarily prevent development. In many cases, it has little practical impact. However, where proposed works could interfere with minerals owned by another party, the minerals owner may seek to enforce their rights.

Potential remedies available to the minerals-owner may include:

• A court order (interdict) preventing certain works from proceeding
• A claim for damages
• A requirement to negotiate consent or other arrangements before works can continue.

The risk will depend on the nature of the development, the wording of the title documents and the identity of the minerals owner.

For that reason, mineral reservations should always be reviewed early as part of the title due diligence process.

Gold, silver and coal

Developers should also be aware that rights relating to gold and silver (mines royal) are generally reserved to the Crown in Scotland and are administered by Crown Estate Scotland. Although these issues arise less frequently than private mineral reservations, they may still require consideration depending on the location and nature of the site.

Rights relating to coal are vested in the Coal Authority (now trading as the Mining Remediation Authority).  Development works that enter, disturb or pass through coal may require a permit or other consent from them.  In former coal mining areas a coal mining search report should also be obtained as part of the title due diligence to identify any risks from past or current mining activity.

Cure or insure? 

Where a mineral reservation is identified, the key question is often whether to cure the issue or insure against the risk.

Option 1: Cure the issue

A developer may choose to investigate ownership of the minerals and engage directly with the minerals owner.

Depending on the circumstances, this may involve:

• Purchasing the minerals title
• Obtaining consent for the proposed development
• Negotiating a minerals agreement
• Otherwise reaching agreement with the minerals owner.

The benefit of this approach is certainty. However, it can be time-consuming, costly and in some cases may impact the viability of the project where no agreement can be reached with the minerals owner.

Option 2: Insure the risk

Where the minerals owner cannot be identified or has not been approached, title indemnity insurance may be available.

A minerals indemnity policy can provide protection against losses arising from the potential enforcement of a minerals owner's rights. However, timing is critical.

Once a minerals owner has been identified and approached, indemnity insurance is often no longer available. Insurers generally regard the risk as no longer "unknown" once contact has been made.  As such a failed attempt to negotiate a “cure” approach may preclude the “insure” approach.

Similarly, insurers may be unwilling to provide cover where the minerals owner is someone likely to enforce their rights. Some Scottish landowners have historically reserved minerals when selling parts of their estates and insurers may be unwilling to provide cover where there is a realistic prospect of enforcement.

Funders will also typically require the minerals position to be resolved or insured to their satisfaction before completion.

Developers therefore need to think carefully before deciding whether to approach a minerals owner or pursue insurance.

Mineral indemnity insurance and other title risks

Mineral reservations are only one of a range of title risks that may be covered by title indemnity insurance. 

The availability and scope of cover will always depend on the circumstances of the property and the insurer's requirements.

Practical steps for developers

Where a mineral reservation is identified, developers should receive early expert legal advice on the implications of the reservation including:

• Whether the scope of proposed works could affect the reserved minerals
• Whether the minerals owner can be identified
• Whether a cure or insure strategy is the most appropriate approach.

Crucially they should not make contact with a minerals owner unless and until title indemnity insurance has been ruled out.

This article was written by Elaine Kennedy-Walton, Amy Scott and Keir Hendrie. If you would like advice on any of the matters discussed in this article please contact Lauren Winters (Director) or Dixcee Fast (Partner).