Landowners: What to do When Developers Come Calling

Selling land to a Property Developer is something many landowners may need to consider. As you might expect, this is by no means a straightforward process, with many moving parts that need to be taken into consideration.

What do you need to consider when you get approached by a Developer wanting to acquire your land for re-development?  Property expert David Burrows explains the steps that should be taken if as a Landowner you are approached by a Developer with a proposal to purchase some or all of your land.

Initial Steps: Get your Team in place

There are a number of complex matters that need to be considered in respect of your land and your own personal circumstances. This also means that there are several potential pitfalls of selling land to a Developer.  It is therefore imperative that you get a specialist team to assist you at the earliest opportunity to enable any initial teething troubles/hurdles to be considered and ironed out saving time and money. Engage a Solicitor, potentially a Surveyor or Land Agent, and an Accountant for tax advice as these professionals will advise on how best  the deal should be structured to maximise your rewards for your patience whilst awaiting the grant of a Planning Permission Working collaboratively this team of experts will endeavour to ensure that the deal goes through quickly and more importantly maximising your return out of the sale to the Developer.

What documentations is needed when selling land to a Developer?

The location of your land may dictate the form of the deal when you are selling to a Property Developer.

Option Agreements

If your land is within an area not zoned for development and within an area where your land would need to be promoted to the Local Planning Authority as suitable for development, then the Developer may wish to enter into an option agreement.

This is a legal agreement giving the Developer the option to buy the land from you as the Landowner within a fixed time frame, often for payment of an initial option fee (which in some cases can be sizeable themselves).  The option agreement will determine how much is paid on completion which is linked to the value of the land with the benefit of the Planning Permission.

It is important to get early advice on the terms of the proposed option agreement. For the duration of the option agreement you are tied into with that Developer your land is sterilised i.e. you cannot do anything with it which is not provided for in the option agreement. You need to be certain that the terms being offered are the best for you given that commitment you are making in not dealing with anyone else during the subsistence of the option agreement. Your team of professionals can play a valuable role in negotiating the initial heads of terms on an option agreement, so it is important that you lean on them for support.

Option agreements are desirable for Developers as it gives a steady flow of future land that they can progress when the time is right to promote it. They also give them the opportunity to combine several options together from different Landowners to produce a larger more desirable development site.  The Developer maintains an element of control and the upper hand in its negotiations with other Landowners in the locality if it already holds option agreements over surrounding areas of land.

As a  Landowner, the upside of option agreements is, in most cases, the sizeable option fee early in the life of the option agreement. On the other hand, the potential downside is that your land will be sterilised for the length of time the option agreement is in place and any dealings with the land will be tightly scrutinised by the Developer and you do not have any certainty that the option agreement will be ultimately be exercised by the Developer even if a Planning Permission is obtained

Promotion Agreements

Land Promotion Agreements are contracts between a Landowner and a Land Promotors, or sometimes a Developers. The Land Promotor promotes a particular pieces of land through the planning process up to the point of Planning Permission being granted. They then they will either market the land the sale of the land to a Developer with the benefit of that Planning Permission or, less usual, may itself deal with the disposal of plot sales directly from you at their direction. The Promoter may pay a financial premium on entering in to the agreement, and will fund all the planning promotion and marketing costs.

The terms of a Promotion Agreement tend to be less favourable that those in an Option Agreement or Conditional Planning Permission. The financial benefit is seen at the end when the value of the land is uplifted due to planning permission being secured. The upfront payments are not significant. However, the Land Promoter is picking up all of the costs to get the Planning Permission and you are getting their expertise in doing this for free. You also retain control of your land.

Occasionally you may have Option Agreements which have an element of promotion and depending upon the level of promotion provisions these are called Hybrid Promotion Agreements.

Conditional Contract

If your land is situated within an area where planning permission for re-development may be more readily available then the Developer may choose to enter into a conditional contract. The contract will be conditional on the obtaining of a ‘satisfactory planning permission’. This satisfactory planning permission may be expressed as being a planning permission which is acceptable to the Developer in its absolute discretion or it may be linked to a list of matters where the planning permission won’t be acceptable to the Developer.

The conditional contract, and indeed some option agreements, may provide for the Developer only paying part of the purchase price on completion of the purchase with the balance to follow at a later date. In this situation, it is important that adequate security is given to you for the repayment of the balance of the completion monies, which will usually be by way of a legal charge secured over the land sold to the Developer pending the outstanding monies being paid.

Again, careful consideration needs to be given at this stage as to the effect on your personal tax affairs if you suddenly receive what could amount to several millions of pounds. Naturally you should seek advice from your Accountant in this regard. The Developer asking for a deferment in making a payment of the balance of the purchase price is not an unusual occurrence in these difficult times and, depending upon what your Accountant advises, it could be tax advantageous to you too.

How can Butcher & Barlow assist with selling land to a Developer?

There are a considerable number of complexities that need to be addressed if you are planning on selling land to a Property Developer. It is strongly advisable to appoint your professional team at the earliest opportunity to ensure that all members of that team can work together seamlessly to ensure that you maximise your opportunity and everything runs smoothly with any hurdles ironed out early on.

Here at Butcher & Barlow we have a specialist legal team who have many years of experience dealing with all aspects of development work and are fully conversed in the complexities likely to be encountered and if necessary can steer you on the appointments of other professionals who may be able to help.  We are here to join your team today.

To get in touch with a member of our expert team to discuss selling land to a Developer, please call  01606 47523 or email dburrows@butcher-barlow.co.uk.