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05 Dec
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Perfect time to sell your land

Looking to sell off some land… then it may be the perfect time to do so!

Savills article Momentum builds across UK land markets published in August of this year reported a growth in UK greenfield land values of 2.7% in the second quarter of 2014, bringing year on year rises to 9.8%, the highest rate of annual price growth recorded for three years. The values of urban land increased by 2.1% bringing annual growth to 8.5%.

Their market surveys also indicated increasing land supplies overall but the underlying shortage of suitable sites remains a major barrier to housing delivery. In addition to an increase in the number of planning permissions following the introduction of the NPPF, coupled with a perceptible shift in sentiment in the house building industry, momentum continues to build in the land markets across the country.

So what are your options?

Promoting your land through the planning process can ensure that you achieve the best value for the land. Similarly, understanding the planning risk associated with any land promotion deal is fundamental to selecting the right option.

There are predominately three forms of agreement under which developers can bring land forward for development. There are variations on these themes but they are mainly via an Option Agreement, Promotion Agreement or a Conditional Contract and are discussed in turn below:

Promotion Agreement

  • This is an agreement signed between the landowner and land promoter/developer that obliges the promoter to apply for planning permission and sell the land once planning is granted.

  • It binds the landowner to the process (subject to conditions such as the promoter within certain timescales etc.)

  • The landowner is therefore obliged to sell once planning is granted gaining a heightened value based on the land value for development purposes.

  • Typically the promoters costs for securing planning are reimbursed and they get an agreed share of the sale proceeds.

  • If planning is not secured by the time limit set out in the Promotion Agreement then there is an automatic termination and the Promoters’ costs are generally not reimbursed.

  • This option is more commonly used to promote sites through a local plan period where there is a longer timescale involved and immediate results are not expected.

Option Agreement

  • Under an Option Agreement the buyer enters into the Option with the landowner and in return for a payment, they receive the right to purchase the land at a future defined time.

  • This is usually on the grant of planning permission and/or any further conditions that the contact stipulates (i.e clarification of ground conditions).

  • Unlike Promotion Agreements, when an Option is exercised, one party typically purchases the land from the other party.

  • Options are flexible in the length they can be granted for (some for 12 months, some for 20 years plus) as they depend more on the readiness of the site for development and level of planning certainty at that particular time.

  • Options are flexible and normally quite inexpensive to conclude.

  • They may have a mechanism for determining price rather than a fixed price i.e they may be 90% of market value in the case of a long term option where the developer wants a reward for investing time and effort promoting the site.

  • A shorter term option may be an option with a gross price with a list of deductible abnormal costs that ultimately come off that gross price to make a net value.

  • Essentially, you have an option to purchase once the conditions are satisfied, but not an obligation.

Conditional Contract

  • These are more widely used where the end use is more certain (if the site has outline planning permission) and you want to purchase the site subject to a successful reserved matters application.

  • They are more popular with land owners than Options as they tend to be more robust and can place more strict performance obligations on the purchaser.

  • They have the same degree of conditionality in that they are usually conditional on the developer securing planning permission but the timescales can be more stringent and come with punitive costs or termination of the contract if the developer does not perform.

  • The price contained within them is more fixed than in an Option and once the conditions are satisfied, you do not have any option but to then purchase the site, thus differing from an Option.

How to make the most of your land

Whether it be for residential, retail or commercial purposes, NJL are happy to talk through the best options for promoting your land. We are currently working on various large scale mixed use schemes in conjunction with a number of UK wide land developers and promoters meaning we are ideally suited to all aspects of land promotion through the planning process.

If you have a site you are interested in promoting why not get in touch.

 

Images- Copyright Eric Jones taken from www.geograph.ie

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