Land Options for Landowners – pause before you press submit
18 April 2018
Pressure to ease Britain's housing crisis means more landowners are being wooed by developers looking for potential development opportunities
Granting a developer an option to buy your land if planning is obtained by the developer has a number of benefits:
- an immediate cash injection in the form of the option fee;
- a passive role in the planning application process;
- an increase in the land value if planning for development is granted; and
- a sale price that reflects that enhanced land value.
Attractive though these factors are, landowners do need to address a number of ' what if ' questions before agreeing terms if they are not to be disadvantaged.
These include:
What if the developer simply land banks the site to suit his own business and funding arrangements?
Answer:
- Avoid option periods of indeterminate length.
- Avoid long option periods unless clear timetables are agreed for milestones in the planning process.
- Require termination rights for developer default/insolvency
What if the developer vetos the continued use of the land on its existing basis during the option period?
Answer: carve out permitted activities to which the developer consents enabling the current use to continue without prejudicing the planning process
What if the planning process takes longer than expected?
Answer: cater for an express extension period subject to payment of a further option fee
What if the enhanced market value following grant of planning is not as high as expected – can the developer insist on a sale?
Answer: reserve a minimum land value/ sale price below which a sale cannot be required
What if planning is granted for part only of the land? Can the developer insist on a sale of that part?
Answer: avoid 'cherry picking' by the developer – stipulate expressly what parts/phases/lots the developer may acquire, in what order and subject to protection for the amenity, use and value of the land retained
What if the developer wants to include expenses in the sale price calculation?
Answer: avoid expenses inflation and double counting – stipulate clearly what expenditure is deductible and how the developer must show it has been incurred
What if the developer obtains a better planning permission for the land after the option has been exercised which increases the value further?
Answer: include 'anti embarrassment ' protection to ensure any such increase is shared with you
What if the developer acquires adjoining land separately for development which your land will enhance?
Answer: ensure the land value calculation takes into account the value of the scheme as a whole both on exercise of the option and for a subsequent future period so that you share in the benefit of that 'bigger picture'
What if planning is granted but the developer decides not to exercise the option?
Answer: cater expressly for the right to use the surveys, plans and drawings which support the planning granted so you can deal elsewhere.
Alongside these questions landowners should always consider the impact of any land option on their personal or business tax planning.
