What are the different ways to sell your land to a developer?
Everyone seems to be agreed that our housing market is in dire straits and more homes need to be built. This is creating significant opportunities for landowners with surplus land to make the most of the commercial opportunities that are now presenting themselves.
When it comes to selling your land, there are different types of agreements that can be made with a developer who will to have secured planning permission for the site before any house building can begin. For multiple landowners, overarching or collaboration agreements would be needed to enable land and resources to be pooled.
Here are the most common routes to get your land sold for housing development.
- Land Promotion Agreements
This type of agreement will contain a commitment to promote a site for planning, with the risk of consent (not) being granted falling to the developer, and sell it when consent has been obtained. Typically arranged very early in the planning process, the definition of ‘development’ can be a bit hazy at this stage, meaning the landowner will have to rely on the expertise of the developer (or his promoter).
A promotion fee is payable when the transaction eventually concludes, the amount being dependent on the level of risk involved in obtaining planning permission. The fee is typically a percentage of the sale price or market value.
- Option Agreements
With an option agreement, the developer is given the right to buy if a particular condition (typically revolving around planning permission) has been met. When exercising the option, it is usual practice for the developer to pay a percentage of the market value of the land. Clearly, the developer will want the land value to be as low as possible while the landowner is looking for the best possible market value, and tensions can arise between the two parties.
For landowners, it is essential to stipulate a minimum sale price in the option agreement, along with certain planning obligations for the developer.
- Conditional Sale Agreements
In this scenario, the landowner is obliged to sell and the developer is obliged to buy if certain conditions have been met. Again, these usually centre around satisfactory planning permission having been granted. However, with a condition sale agreement, the definition of what constitutes acceptable development will have been clearly defined, and there is likely to be a shorter timescale than with an option agreement.
The sale price will either be fixed or calculated with deductible costs rather than reflecting the open market value, and a minimum price should be agreed to protect the landowner’s interests. Overage provisions may also be included in a condition sale agreement, usually calculated as a percentage of gross receipts over a set figure.
- Joint Ventures
There are many ways that a joint venture land development deal can be structured. Typically, the landowner will contribute the land and the developer will obtain planning consent, build out the site and market the new build houses for sale. Often, the landowner will retain the freehold title right up to the point of sale to the eventual house purchaser.
It is usual practice for the developer to pay an upfront sum to the landowner and once the new build houses are sold, the sale proceeds will be split between developer and landowner according to an agreed percentage.
For a joint venture to be successful, the identity and integrity of the developer is of key importance. Since the landowner retains ownership of the freehold during construction, he can exercise a certain level of control over the quality of the build. Agreed planning and construction milestones are a typical feature.
- Own Developments
Finally, there is nothing to say that you have to sell your land to a developer. In order to realise the value of your land, you could decide to develop it yourself, take all the risk and bear all the costs. However, if your development is successful, there are considerable financial rewards to be reaped.
As the landowner, you will need to appoint all the relevant professionals needed to promote the site for planning and take it through to development and sale yourself. This will involved a number of specialist contractors that you will have to manage.