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The need for new housing, coupled with a shortage of sites available, is fuelling demand for land for residential development. It is important landowners are aware of the potential opportunities and pitfalls, says solicitor Chris Waterhouse, real estate partner with Andrew Jackson Solicitors.
According to a 2021 report by Savills, the buoyant housing market and prospects of economic recovery have given confidence to both house builders and developers, leading to growing demand for development land.
Schemes range from smaller projects, involving just a handful of units, through to major housing schemes that comprise thousands of new homes with extensive infrastructure, such as new roads, retail units and other facilities.
Landowners may be aware of opportunities to sell land for development, either because their land has been the subject of a planning allocation (often driven by a developer), because they have been directly approached by a developer, or very often because they have identified and acted upon an opportunity.
However, when the opportunity arises, patience is required, along with a willingness to be committed in the longer-term. People must also be aware of the complexity of the sale.
There are numerous structures that can be used, including:
- Options – these give the developer a right to buy the land but no obligation to do so. Landowners may wish to consider the duration of the option and not tie up the land indefinitely, or for a long period, with a single developer. A landowner may be able to secure an option fee if the land is in great demand or if the house builder is asking for a long-term option.
- Conditional contracts – these bind both the buyer and the seller, subject to securing satisfactory planning permission. Most developers will wish for absolute discretion over the question of satisfactory planning permission and so often a conditional contract amounts to little more than an option.
- Promotion agreements – these follow a somewhat different route and involve a promotor who is experienced in securing planning permission for development sites, undertaking to carry out all the work required to secure planning permission. The promotor is expected to fund the costs, but these will generally be repaid to the promotor out of the sale proceeds, along with a percentage share of the proceeds by way of a fee for the promoter’s services.
Each of these structures revolve around increasing the value of the land by securing planning permission for development and all may have specific benefits to those involved.
Of course, a landowner could fund the planning process and instruct valuers, planning consultants, solicitors and other professionals to advise on the process, but rarely will a landowner have experience in this area, and the costs are likely to be very significant. A frustrating outcome might result in a house builder being unhappy with the planning permission (layout, diversity, financial obligations), regardless of the expense incurred by the landowner.
Another point to note is that it’s often the case that landowners will work alongside neighbours to secure a single planning permission – and in such cases an agreement between the various landowners will be required to regulate the relationship and to deal with the distribution of proceeds of sale. Depending on the individual circumstances, transferring the titles to trustees may be an advantage to avoiding adverse tax consequences.
Bear in mind that house builders prefer to structure matters so that they can be “onsite” immediately after completion. This can be frustrating for landowners as, having secured planning permission, house builders will then seek to finalise agreements with local authorities for highways, drainage and water authorities, and electricity, gas and telecom suppliers, each of whom may have a requirement for an easement – which gives the right to use someone else’s land.
Something else to consider is that a housebuilder may request to defer payment of some of the price. Depending on the size of the development, this may be over one to three years, or even more, with a slice of cash being paid on each anniversary of completion. There are serious tax and security considerations for how this is best dealt with.
Given the complexities that may arise, landowners should seek specialist advice from an experienced team of advisers – surveyors/valuers, planning advisers and solicitors – who understand the workings of the entire process, and to ensure their best interests have been taken into account.
For advice on land development, please get in touch with Chris Waterhouse on 01482 325242 or email firstname.lastname@example.org