Get advice when selling land with development potential
ENTERING into an agreement with a house builder or land promoter is an established way of promoting land for development.
House builders and promoters can offer an attractive initial option/promotion fee together with the expertise to promote your land for development through the Local Development Plan or a planning application, with no upfront cost to the landowner. If planning consent is obtained, land value can be hugely increased compared to that of agricultural land value.
As attractive as this sounds, option agreements can tie up land for over a decade and bring with them a number of potential pitfalls for those not experienced in this process. Here we outline the most important considerations that landowners should be aware of before committing to enter into an agreement.
Who to partner with – builder or promoter?
The first consideration for a landowner farmer looking to enter into an agreement is whether to choose a house builder or land promoter. There are pros and cons of both.
In broad terms, a house builder can demonstrate to the planning authority that they have a clear interest in developing the land and they are not promoting land speculatively. They generally look to take a lower share of the development value, around 10% to 15%, although this can be lower with competition.
They will also seek to deduct their promotion costs, which will be significant, from the purchase price.
The tricky part is that you will be required to negotiate the sale price with them on a one to one basis, so there is more reliance on getting expert advice and ensuring that there are land value controls set within the option agreement to determine the land price.
A land promoter, by contrast, will take a higher share of the development value, around 20%. However, when they secure planning permission, they will market the site to a number of house builders and hence maximise the land value through a competitive and transparent process, which they have a vested interest in.
They will also normally absorb more of the promotion costs. However, councils could view their planning applications as more speculative and potentially less deliverable, meaning planning permission can be more of a hurdle.
Selection of the right house builder, or land promoter is the most important thing to consider. Securing planning permission for Green Belt releases is a complex, long term, time consuming and costly process.
Anyone approached directly should obtain competing proposals and get each party the set out their planning strategy, financial proposal and resources they will employ on your land. Only then can you to make an informed decision.
Navigating the optionpromotion agreement
Following the Planning (Scotland) Act 2019, new Local Plans are required to cover a period of 10 years.
Depending on when the last Local Plan was adopted a house builder or land promoter will require an agreement to last for up to 15 years, in order to give them enough time to promote the site and secure planning permission.
It is important to ensure that the selected house builder or land promoter has the right planning strategy and is prepared to allocate the right level of resource to fund the land promotion, as failure to secure a planning allocation could result in a long delay before you can promote the land again or potentially blight the site.
Option agreements themselves are complex. They have to take account of multiple variables that are not going to be known until some point in the future.
These include matters such as education contributions, affordable housing, unknown abnormal ground conditions, surface and foul water drainage, roads improvements and utility capacity. All these items are costs which will be deducted from the eventual land purchase price.
These are all opportunities for house builders and promoters to reduce the price that they have to pay for your land. Expert advice will minimise these costs and maximise your return.
Getting the right advice
House builders and land promoters will cover your reasonable professional fees incurred in negotiating and documenting the agreement so if you are approached getting professional and planning advice from a surveying practice that understand the housing land market and have a good track record of negotiating option agreements is essential.
Once planning permission is secured it is equally important that you employ the right surveying practice to negotiate the land price, one that understands the market, the terms of the agreement and has expert knowledge in negotiating abnormal development cost deductions.
It pays to take early advice if you have land with development potential or are approached by a house builder or land promoter. Just remember, you only sell your land once.