Selling Land with the Benefit of Planning – Preparation for Sale
With the increasing demand for land to help house our growing population, a large number of landowners who may have previously been overlooked as potential development sites are now starting to become more attractive to the discerning developer. Herrington Carmichael acts for both landowners and developer clients seeking to capitalise on the demand for new housing.
Things to consider
Title to the Property
Before the 1980s most land within England and Wales was unregistered i.e. people still had physical deeds/conveyances that contained the rights and obligations attached to a particular parcel of land.
The Land Registration Act 2002 made it compulsory for land to be registered once it had been “dealt with” i.e. sold / transferred / mortgaged. This is undertaken by the Land Registry and most documents/titles are now available electronically.
A developer will ideally want a title to be registered prior to completing the purchase of a parcel of land to ensure that any title issues are dealt with prior to the sale of plots on the development. It is also within a landowner’s interest to register their property on a voluntary basis to ensure that that all of the necessary rights are available and to prove that they have legal and beneficial title to the property.
In order to develop land for residential development, the first step for the party seeking to redevelop (assuming title to the property is registered) is to obtain a planning permission granting them the right to do so. The landowner doesn’t have to be the party to apply for the planning permission. As most landowners are not usually closely involved with the planning process as this is usually done by planning consultants or other professionals.
Section 106 Agreements
A section 106 agreement is a document used by Councils to secure planning obligations such as funding for schools, roads, infrastructure and other items within the local area. Often a planning permission won’t be issued until the section 106 agreement has been entered into. The obligations within these agreements bind the land and therefore it is vital that they are reviewed and negotiated prior to the planning permission being issued.
The level of the contributions within the agreement needs to be reviewed and considered carefully to check the viability of a scheme. Other matters to consider include the number and type of affordable housing dwellings to be constructed on a site. This condition is usually in almost every planning permission and is an important issue when considering the viability of a scheme.
It is common that the architect appointed to prepare planning documents will hold the copyright in those drawings. It is therefore common for a developer to require that the architect grants them a licence to use the plans. Prior to marketing the property for sale it would be useful to contact the architect, and any professionals who produced reports for the planning consent, to ascertain whether a licence or reliance letter will be available to the buyer.
Types of Agreement
Once a developer has assessed the land by undertaking site surveys etc. they will ask the landowner to enter into one or more of the following documents (these are often long term agreements running for several years). The list below is not exhaustive and the types of document used will depend on the structure of the deal.
a. Promotion Agreement
This is where a developer/land promoter agrees to apply for planning permission for a development on behalf of a landowner. The developer/promoter will also usually fund the initial planning and marketing costs. If the property is sold to a third party with the benefit of planning permission or developed in accordance with the planning permission that has been granted then the developer/promoter’s costs are usually reimbursed from the sale proceeds. If planning permission is not granted then the promotion agreement will terminate and the developer/promoter’s costs will not be reimbursed.
b. Option Agreement
An option agreement is an agreement entered into between a landowner and a developer. This agreement grants the developer an option to buy the land if they desire (usually specific conditions are set out in the agreement such as the developer required to obtain a viable planning permission). The purchase price is often determined by reference to a percentage of the property’s market value (once planning has been obtained).
c. Sale and Purchase Agreement subject to obtaining planning permission
This is a conditional contract entered into between the landowner and usually the developer for the sale of the property once the developer has obtained planning permission. Other conditions may be inserted into the contract following negotiations between the parties.
d. Joint Venture Agreements
This type of agreement is used where a landowner engages a developer to carry out the development on its behalf. Usually, a landowner will want to sell the property to the developer for a price based partly upon the development value. This is determined/calculated by a surveyor.
In short, when buying or selling land there a number of factors to consider and also a number of ways in which to structure a deal. If you would like to discuss any of the points raised within this article please contact Mrs Terri Warren in our Real Estate department. You can also email your query to firstname.lastname@example.org or call 01276 686222.
Top read insights in 2019
Award winning legal advice
We are solicitors in Camberley, Wokingham and London. In 2019, Herrington Carmichael won ‘Property Law Firm of the Year’ at the Thames Valley Business Magazines Property Awards, ‘Best Medium Sized Business’ at the Surrey Heath Business Awards and we were named IR Global’s ‘Member of the Year’. We are ranked as a Leading Firm 2020 by Legal 500 and Alistair McArthur is ranked in Chambers 2020.