Court overturns squatters' rights on land worth millions

Taxpayers face a compensation bill that could total millions of pounds after a ruling that "squatters' rights" laws breached the human rights of a property development firm.

The ruling last week from the European court of human rights in Strasbourg is a rare example of a judgment upholding the human rights of a company rather than an individual.

In what one lawyer described as "Britain's biggest land grab", JA Pye (Oxford) Limited lost 23 hectares of prime land worth up to £21m to a farmer who had used it for grazing for 12 years. Under the law of "adverse possession", the House of Lords ruled in 2002 that the farmer, Caroline Graham, was entitled to the land without paying a penny.

The Strasbourg judges ruled by four to three that the company's right to enjoyment of its property was breached by Britain's failure to change the law to protect landowners. They left it to the government to try to negotiate compensation with the developers, failing which the case will go back to Strasbourg for a ruling.

The government argued in court that public funds should not be used "to indemnify a corporate property developer against the consequences of its own incompetence". It said the company's loss should not be put at much more than £1m, applying a discount for its failure over 12 years to protect its title to the land.

Pye has obtained a valuation of £10m, taking into account the prospect of planning permission for development. With permission the land could be worth £21m. It also wants the government to pay the £1m costs it incurred taking the case through the English and Strasbourg courts.

The Department for Constitutional Affairs said: "We're studying the judgment and considering our next move."

The law lords ruled three years ago that the 23 hectares (about 57 acres) of agricultural land at Henwick Manor, Thatcham, near Newbury, Berkshire, belonged to Ms Graham, who with her husband, Michael, had used it as grazing land. Mr Graham died in a shooting accident in 1998 but Mrs Graham carried on his claim for the land.

The lords held that she was entitled to keep the land under the ancient law of adverse possession - squatters' rights - which allow an occupier to claim property as his own if he has occupied it without the owner's permission for 12 years. The law, described by Pye as "legalised robbery", was changed in 2002 but the change was not retrospective.

The Grahams occupied the land under a grazing agreement with Pye, but in 1984 the company refused a further agreement because it wanted to develop the land. However, the Grahams continued to use the land and in 1997 Mr Graham registered cautions at the land registry claiming to have acquired title by squatters' rights.

Legal action followed, which the Grahams initially won in the high court. Pye got the ruling overturned by the court of appeal, but the House of Lords ruled in the Grahams' favour, a decision Lord Bingham, the senior law lord, said he had reached "with no enthusiasm".

The Strasbourg judges said the squatters' rights law might have been justified before land was registered to avoid lengthy disputes over ownership. But where land was registered, it was "difficult to see any justification for a legal rule which led to such an unjust result".

The result for the company was "one of exceptional severity", the judges added. The taking of property in the public interest without payment of compensation was justified only in exceptional circumstances, they said.