Is your land suitable for development and what will you do if a developer calls?

 

Landowners frequently receive speculative approaches from developers and land promoters inviting them to enter in to binding legal agreements for development of their land.  The terminology can be baffling, but rather than throwing these letters in the bin, or worse, signing on the dotted line, take time to consider what is on offer and get professional advice.

Before you sign on the dotted line, always check:

• If you have land which is capable of development, always seek advice from a valuer and from a solicitor before signing up with a developer. Often the developer will contribute to the landowner’s costs for professional advice so you would not be out of pocket.
• Make sure you understand the true value of your land; joined with your neighbours’ land, your land may be more valuable or have strategic importance to a developer.
• Consult your accountant or tax adviser to check any family property ownership is in the right names and properly structured in order to maximise tax efficiency.

If you are a landowner selling land for potential development, there are a variety of different ways in which to structure the arrangements:

 

1. Unconditional Contract – this is the most certain arrangement from a landowner’s perspective. The landowner agrees to sell the land to the developer with completion of the sale occurring on an agreed date for an agreed price and without any pre-conditions or other pre-requisites imposed.
2. Conditional Contract – this gives more flexibility to the developer and less certainty to the landowner. The contract for sale and purchase is conditional on certain pre-conditions, most usually the grant of satisfactory planning permission for development of the land in question.  The contract will attempt to define the pre-conditions in sufficient detail so that it is clear when the pre-conditions have been satisfied and completion is triggered.  The price is often framed in terms of general principles and may be linked for example to the number of residential units (i.e. houses or flats) for which planning permission is actually obtained.
3. Option Agreement – this gives even more flexibility to the developer. The agreement provides that the developer may call for the landowner to sell the land to the developer at any time within a set period of time (typically between 18 months to 5 years).  This is to allow the developer time to obtain planning permission but the option need not require this.  There is less certainty from the landowner’s perspective, because the developer may choose, at its discretion, whether or not to call for the land to be sold to it.   Again, price is often framed in general terms and may be limited to success at planning, but usually requires the landowner to agree to reimburse the developer for aspects of the costs in obtaining planning permission.
4. Promotion Agreement – becoming more popular, these types of agreements work as a collaboration between the landowner and a promoter (who is often a developer in their own right) to promote land for development. The landowner and the promoter work together to agree a planning strategy for the land to achieve allocation for residential development and then secure planning permission.  The parties will then agree a sales strategy to market the land, with the new planning permission, on the open market so as to secure the best price.  The landowner will usually reimburse the promoter for the costs incurred in securing planning permission, marketing and selling the land and the promoter receives an agreed fee.

At Godwins, our Commercial Property Team would be happy to guide you through the legal aspects of the development process for your land.  Please contact Annabel Evans and Helen Brooker for an initial chat.