In a recent blog we explored what to do if you think your land may have potential for future residential development and briefly touched on three potential routes open to those who want to realise such opportunities. Here we provide some of the advantages and disadvantages of each of those routes. Generally speaking, options for landowners who wish to build houses on their land are as follows:
- DIY – use a team of professionals to help you promote your land and maximise value
- Work with a developer who will seek to take an option over your land
- Work with a promoter who will use their expertise to secure an allocation and/or planning permission for alternative use and then help you to sell it, if successful.
The choice is yours and will largely depend on the level of funds you have to spend on a project which may be speculative but could also be financially rewarding.
If you and your financial situation can tolerate risk and you have the confidence that the market is strategically strong – that is, that there will be demand for your land once planning is secured (bearing in mind this could take 20 years) – then the first option may be for you. You are in control of the whole process, with an appropriate professional team who can complete the heavy lifting, with a focus on maximising the return from your investment. With great risk often comes great reward – when the land is sold you should receive at least 100 per cent of the value of your land.
But you must be prepared for failures, setbacks, complete start-overs and changes to the market – some of which, like the pandemic, may come out completely out of the blue. You will very likely spend a lot of money over the years without securing any income until, or unless, you achieve consent and sale.
On the other hand, if you are less tolerant of risk, the second or third option may be best for you.
Option Agreement Typically, a housebuilder will have a right to buy your land for a period of time (anywhere between five and 20 years), during which time they will be obliged to actively promote your site for development to the Planning Authority. They will then decide whether or not to purchase it, at an agreed discount to market value.
An option agreement does not necessarily guarantee a sale of the site but the developer will incur considerable cost to meet their contractual obligations and councils’ planning teams may be more willing to consider a site worthy of allocation or consent, if they feel it is brought forward by a credible builder with a history of delivering.
Promotion Agreement This is a similar agreement, but rather than the promoter having a right to buy your land, they have a right to help you sell it. They take on the cost of promoting and securing the optimal consent for your site and you are obliged to sell upon completion with the promoter taking a cut of the land price plus their promotion costs.
A promotion agreement is favoured by some as promoters usually have the same end goal as you. They want to optimise the proposed development to secure the highest price on competitive sale. But there is no guarantee that at the end of the process the site will sell and while the optimum scheme may maximise value on paper, it may not be deliverable or marketable.
The best route will be client specific. Professional advice from an early stage in the process will help to maximise value and help secure a contract that suits your risk appetite.
Further information
Contact Richard Thompson or Claire Crawford
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