Thinking of selling land to developers direct?
Here are five ways to sell your land privately and get the most value of out of your property.
Across the UK there is a growing demand for land for sale. More than 340,000 new homes are needed across the country each year to satisfy the need of an increasing UK population. Similarly, new and established businesses are also seeking land opportunities to expand their operations nationwide.
Landowners looking to sell their land direct to developers have a real opportunity to increase returns from their property. Working with an experienced and well-connected developer strengthens the chances for success with any new scheme. In addition, it can lower third party fees and capital gains tax, bring in businesses and investors early on, and help the landowner be more closely involved with the emerging development.
A land sale can take various forms – all of which have benefits and considerations for the landowner. Below are five of the most common types of agreements that can be discussed at an early stage with your chosen property developer.
The unconditional land sale
Unconditional land sales are a common method of land disposal in the property industry. They usually involve the sale of a parcel of land for a defined up-front sum without any conditions (i.e. subject to planning or similar). Once contracts for the sale are signed and exchanged, the buyer is committed to the land and must acquire it on the stipulated date.
Unconditional land sales are generally considered the most straightforward option for the landowner. This is because they can secure the price agreed during the negotiating process without further risk, delays or involvement. This strategy is suitable for landowners that want to dispose of land quickly and seek assurance of realising income quicker.
While generally seen as the safest bet for landowners, conditional sales present the highest amount of risk for developers. For this reason, they are likely to value the land closer to its current than potential use which means a lower return to the landowner.
Most importantly, however, unconditional contracts prevent landowners from gaining a share of the uplift in the value of their land once the planning process has delivered a successful outcome. The difference between the revenues available to landowners from unconditional and conditional sales can be significant – they can reach seven figure amounts, depending on the location, size and potential of the property.
The conditional sale
Another common method of selling land to developers is the conditional land sale. Generally used when speed of disposal is not the most important consideration, it allows landowners to share in the gains of successfully achieving planning consent with their development partner. In addition, there is no fee obligation as the developer usually shoulders all the expense and planning risk.
Conditional contracts can only proceed once certain requirements are met – i.e. developer has secured planning permission from the local authority. Then the contract between the parties becomes unconditional and the seller and purchaser are required to complete the transaction within a certain period of time.
A conditional land sale provides owners with greater security and control over their asset at a price based on the new, higher value of the land. However, landowners will also be taking on some of the risk of unsuccessful development. For example, if planning permission cannot be secured, the developer will not be obligated to purchase the land. In these circumstances landowners will usually be able to retain the entire or part of the deposit paid by the developer at the outset.
Selling land via an option agreement
Another popular approach to sell land privately is an option agreement. This strategy involves a contract between the landowner and the developer to purchase the land during a pre-defined ‘options’ period. The period can last anything between two and ten years and in return the landowner usually receives a non-refundable fee. This fee is typically in addition to the final purchase price paid when the option is exercised.
For the landowner, this route offers minimal risk and no cost obligation as the developer takes the site through the planning process at their own expense. Upon successfully securing planning consent, the developer has the right to acquire the land and the landowner can benefit from its increased value through a so called ‘overage agreement’.
Promotional agreements are a way in which the landowner partners with a specialist – a property developer or land promoter. The latter takes their plot through the promotion and planning process as their representative and then puts it up for sale on the open market or develops it further.
Working with a business of this type is usually straightforward for the landowner. Once again, the developer takes on the risk and cost for the scheme and even pays for the landowner’s professional fees. The property owner benefits from the knowledge and experience of the developer who is well versed with local land requirements, has a good relationship with the planners and can bring potential buyers from previously established connections.
As a reward for their services, the promoter takes a percentage (which could be up to 20%) or a fixed payment from the final sale price of the land. The developer can also deliver the construction work on-site for a fee. The landowner benefits from the substantially higher value of their property with planning allocation or consent in place.
Joint ventures or collaboration agreements
Another option available to property owners is a joint venture where the landowner and developer work together to develop the site. In this scenario, the landowner provides the land and the development partner contributes funding, expertise and overall project management.
It is usually the developer’s responsibility to determine the overall strategy, carry out all surveys and deliver the entire programme through planning. Because of their significant involvement, however the landowner – whether and individual or a corporate entity – can also have a decisive say in the development.
While joint ventures are more complicated and can take various forms, they are an attractive opportunity for landowners and developers to work together and share in the benefits of increased land value. Whatever increase is achieved by the parties at the end is shared either equally or in another pre-agreed manner.
It is clear that when it comes to selling their land for development, landowners have various options that they should consider. Not every strategy will be suitable for every land holder but by taking into account risk appetite, required speed of disposal and potential return, landowners can maximise the value of their land.
For further guidance on selling land for development, visit www.godwingroup.co.uk/sell-your-land or talk to one of our specialists at 0121 516 9508.