The acquisition and development of land near or over railways presents some unique challenges. Andrew Wilmot-Smith signals a way through them
Network Rail owns more than 2,500 stations and has a national portfolio of over 7,400 properties. Transport for London owns (at its own estimate) 5,700 acres within London. The rail infrastructure owners control vast areas of brownfield as well as operational land. Much of central London and other inner cities are built on, beside or very close to railway land, tunnels and stations, and, not surprisingly, much industrial and distribution land adjoins.
For developers and investors, this makes railway land hard to avoid, but also – with the pressure on space in central London and the nationwide drive to re-use brownfield land – potentially attractive. However, rail infrastructure owners behave very differently from conventional property businesses and an understanding of how they operate, and their procedural requirements, is essential for anyone looking to develop or acquire land in or around railways.
This article sets out the key legal and practical points developers should be aware of when dealing with railway land. It uses Network Rail as the main national example, but similar considerations apply to more local operators, such as London Underground.
Dealing with railway managers
A statement of the obvious, perhaps, but the primary remit of infrastructure operators is to own and manage the railways. From experience, their commercial teams are very commercial in negotiations with developers, but the operation and safety of the railways is their ultimate concern.
The transactional teams will defer to, and often require clearance from, their operational colleagues before documentation can be signed off. There will often be several layers of internal process to go through. This can make signing off and executing deals unexpectedly slow for new investors.
It is important to identify at the outset of the deal whose approval on the seller side will be required and the required timing and reporting arrangements.
A distinction should be made between acquiring and developing former, or currently non-operational, railway land, and the transfer or lease of current operational land. The former is more straightforward, but still needs careful consideration.
Former railway land (especially surplus adjoining land) is likely to be subject to covenants imposing controls on building, drainage and vegetation growth, which can have a potential impact on development. Often, any requirement to seek the operator’s consent to development will be discretionary, and easements and other rights may be capable of curtailment at short notice if there is a wider network need.
In many instances, especially in central London, Network Rail and other operators have made use of the airspace above stations to permit office and other developments on top of them. These will usually be held long leasehold and, as with any lateral land interests of this nature, there will be complex demise and support issues to work through.
As these investments sit above operational structures, there are often some quite involved freeholder sign-off processes before lessees can exercise, for example, rights of access for repair over retained station land. Typically, the operator will retain rights to reoccupy some or all of the premises for operational processes if there is a railway emergency, which can appear initially quite alarming, but they are rarely an issue in practice.
Operational land
The process is more complicated in relation to transactions involving operational railway land.
Development close to retained operational assets will usually be the subject of an “asset protection agreement” between the operator and the developer. This will impose strict controls, and will be essentially non-negotiable.
The operator will have the ability to approve the identity of the contractor and the building contract, and will expect to have the benefit of collateral warranties in respect of the works. The developer will be liable to pay the operator’s monitoring and surveying costs in connection with the works, which because of the number of internal processes involved will often be substantial.
Although the agreement will usually set out a detailed agreed programme of works, the operator will be able to suspend the works if need be, to safeguard the wider railway network. That may delay the development, with potential consequences in terms of cost, knock-on breaches of facility and prelet documentation and the like, which the developer may not always be able to insure against or pass liability for to its contractors.
The operator may agree to meet direct costs arising from such a suspension, but not indirect or consequential losses.
The agreement will set out detailed controls on excavation and building within certain distances of the railway line. This is particularly the case following the Gerrard’s Cross incident in 2005, where proximity to tunnels is involved. The operator may require what it regards as high-risk works (for example, the operation of cranes close to operational lines) to be secured by a stakeholder or other financial bond pending completion of the works. That may have up-front development funding implications.
The operator will have the right to certify completion, independently of the developer’s own contractor or monitoring surveyor. The insurance cover required of the developer can be substantial, and again, it may not be able to pass this on in full to its contractor and appointees.
There will usually be a carve-out of the operator’s liability for loss caused by electrical interference from adjoining electric lines, and, conversely, controls on the location of nearby telecoms equipment, which need careful consideration in the light of modern building services.
Other potential problems
Where land is being acquired from a railway operator, the following matters should also be considered.
If the transaction involves the transfer of operational land which is then to be decommissioned, there may need to be a set of internal “technical clearances” from the operational team to ratify the loss of working land for commercial purposes, before documentation can be signed.
If the decommissioning of operational land is required, leases and other occupational arrangements with train operators may need to be extinguished before completion. The transfers may seek to impose controls on building in the vicinity of the retained railway network, and these should be analysed carefully to ensure that they do not prevent the development (or any subsequent redevelopment), or cause funding problems. There is usually scope for sensible negotiation here.
Transfers of operational land will invariably pass all liability for historic contamination onto the buyer. Especially where the land transferred is intended for residential use, this needs careful due diligence and potentially insurance to ensure the completed development is mortgageable.
Complex industrial developments next to railway lines may often require detailed easements and other rights over the retained railway, for example for bridges, level crossings, or for utility easements. Note that, typically, these will be granted in the form of leases of easements for a term certain, and will so technically be forfeitable in case of breach.
This should be borne in mind especially when seeking third-party funding. Care should be taken to avoid a right of forfeiture on insolvency. Again, the easements will enable the operator to suspend the rights in an operational emergency, and will provide robust rights of access to rectify developer breach.
Title, especially to Network Rail land, is generally unregistered and, given the lengthy statutory devolution of the railway networks from the original private rail companies in the mid-19th century via various nationalised entities through to Network Rail, the paper title is often incomplete. There is a well-trodden process, which the Land Registry is familiar with, for procuring statutory declarations from Network Rail’s mapping team, but developers should allow time for this, and bear in mind that some lenders may not permit funds to be drawn down until first registration is complete.
Even where an intended development does not directly abut or involve operational railway land, developers should note that, in many circumstances, rail operators are statutory consultees in relation to planning applications, and so may still exert an indirect influence over the course of developments.
Many highly imaginative and complex schemes have been put together between developers and operators involving railway land. They can be extremely rewarding, and Network Rail in particular has a strong recent record of joint ventures. But developers should be aware of – and allow for – an inevitable degree of process.
Andrew Wilmot-Smith is a partner in the property department at Boodle Hatfield LLP and has acted for a number of developers and investors on schemes involving railway land
