How to sell your land for development.
If you have a parcel of land or have a site that might have development potential and are interested exploring selling to maximise the value of it, there are several ways in which this can be achieved. We have produced a short guide below on how to sell your land for development to ensure you have a good idea on the various options available to you and what you need to think about before selling your land to a developer.
Before worrying to much about how exactly you go about selling your land, it is certainly worth considering if your land or site even has development potential. No doubt you will have considered these things already but just in case not here are a few things to think about before looking at selling your land for development.
Is there a need for housing in the area?
The first and probably most important factor to consider and find out is if there is a need for housing in the area? This can be done in several ways. The best place to start would be to find your local plan or core strategy and clarify the current planning position of the local authority in relation to your land. You will want to check whether your site is in an area they are looking for housing growth in and if so, has it been achieved or not. You will want to check the status of the 5-year land supply so see if the local authority is on track or behind the required target. You will also want to clarify if the Local Authority is open to site submissions through consultations such as a Strategic House and Land Availability Assessment (SHLAA) or also sometimes know as a Housing and Economic Land Availability Assessment (HELAA) or has a Call for Sites out or when they might be looking for one / have they had one recently?
If your area has a Neighbourhood Development Plan (NDP), it is certainly worth spending some time looking through it to find out what stage the NDP i.e. adopted or still emerging, the housing targets and what level of housing has already been committed either through allocated sites, already committed planning permissions or windfall allowances. Ideally you will want there to be a deficit i.e. there is still room for more houses in the area. You can also find what’s called a policy map in the NDP and check if your land falls within the settlement / development boundary or not as well as environmental factors which might effect development which we will talk about below in more detail.
Factors that effect your lands development potential.
Once you have clarified the planning position of your land, you will next want to consider factors which may affect the ability to developer it or get planning permission on it. There are lots more but broadly and the key ones to consider would be:
Flooding – Check on the Environmental agency what Flood Risk Level the site is in.
Contamination – consider what the land is currently being uses for / has previously been used for.
Is the land protected such as in a Conservation area or AONB?
Access to the land – Is there good access to the land?
Are there Tree Protection Orders (TPOs), Public Rights of Way (PROW) or overhead cables on the site?
Is the land near local amenities such as schools, shops, roads, pubs etc?
If you have considered all of the above and feel your land has planning potential based on local planning policy and well as on the surface there doesn’t seem to be any major factors effecting it then then next thing you will want to think about before selling your land is getting the title deed sorted as this will help speed things up when you open up discussions with a developer about buying your land. Make sure the land is registered under the Land Registry, you have any missing info sorted and any easements or covenants are sorted if an issue. Most of this the developer will sort out if needs be but it is a good idea to think about it too.
Also make sure you have mortgage consent if the land subject to a legal charge or selling off a small part of a larger piece of land.
It would also be worth getting a valuation done on the land as to what it is worth currently and perhaps even with planning / development potential.
Lastly, before entering any form of land sale with a developer make sure you seek legal and tax advice and the potential implications of selling the land.
How to sell your land for Development
At this point you should have a pretty good idea whether your land has development / planning potential and now is the time to start actually thinking about selling it and the best option available to you to maximise the value of your land. The first thing to consider here is what are your expectations from selling your land? Think about the timescales you might want to sell you land in and what you really want out of selling it and the reason for selling it? This will help determine what option you consider for selling the land which we have set out below.
There are 5 main ways to sell your land:
1. Sell it without planning permission
The quickest way to sell you land is sell it as it. This is also known as an unconditional purchase. The developer buys the land and hopes to secure planning in due course. However the main factor to consider here is that due to the high risk involved form a developer buying it without the comfort of planning, the value offered will be considerable lower to reflect that risk they are taking as nothing is ever certainly, especially with development.
If you need to sell quickly or won’t wait for planning to be granted, this might be the best way to sell the land however if you want to maximise the value of your land then the options below might be of more interest.
2. Sell it with planning permission
If you are looking to fully maximise the value of your land and happy to take the risk, the best way to do this is by getting planning permission on it. You can engage an architect and planning consultant to help you through the process, but you need to be sure they are going to offer the best chances of getting planning. This therefore reduces any risk from an incoming developer looking to buy the land as planning has already been granted. However, the main factor here is, you as the landowner, must therefore take that risk on behalf of the purchaser which not only is risky but potentially incredibly expensive.
You could look at getting detailed planning consent on the site however this would usually result in a developer coming in and wanting to change the design to suit their requirements which would take time. Detailed planning can easily cost between £30,000 and £100,000 depending on the size of scheme.
The better way would be to take the site to outline planning permission which sets a principle of development on site but allows a developer to sort the design out themselves in the Reserved Matters (RMs) to suit their house types and design requirements.
3. Sell it on a Subject to Planning Basis
If you would like to optimise the value of your land but don’t want to take the risk of planning or spend money on getting planning permission then the best way would be to explore selling your land on a ‘subject to planning’ type arrangement. This is commonly known as a Conditional purchase as its conditional of getting planning. In this situation the developer will enter into an exclusivity agreement and then pay for planning permission on the site. If granted, they will then complete on the purchase. This de risks it for the developer and thus allows them to pay a higher price for the site as they know that is planning is not granted, they do not have to buy the site. Due to the timescales of getting planning, this structure can take a long time and so you must decide if you are willing to wait to receive a higher value for the land.
The most common way of entering a subject to planning structure for the sale of your land is under an option agreement. This agreement typically is anywhere from 2 to 10 years depending on the anticipated time required to get consent. An option fee is usually paid for entering into the agreement. The developer will then take the site forward into planning. Once planning permission has been granted, the developer will buy the site off the landowner, either for an agreed price or it may be determined at the point of planning. It is common to agree a discount, usually around 80% of the market value, to reflect the developer’s risk and costs involved in getting planning.
This structure is exceptionally low risk to the landowner as they incur no professional or legal costs for entering into this agreement as these usually are covered by the developer on the landowner’s behalf.
The second way of undertaking a subject to planning agreement is by exchanging on the site with a delay on completion whilst the developer runs the planning. The developer is then legally obligated to buy the site once planning granted. This is usually for a pre agreed amount before exchanging contracts. This ensures maximum security and certainly to the landowner as the developer is committed to buying the site once planning achieved.
4. Enter into a Land Promotion agreement
The next way to sell your land to a developer would be through what is called a land promotion agreement. This is a common method of working in collaboration with a developer to really optimise the value of the land. Unlike option agreements, promotion agreements are usually used for larger, longer term development sites. A land promotion agreement allows the landowner to benefit even further from the planning uplift created on the site. This allows you to also retain a degree of control over the site.
When you enter into a land promotion agreement, the developer will ‘promote’ the land through the planning system, usually taking a longer-term view on the planning potential. If planning is achieved the land is then offered for sale to the open market with the befit of planning. The developer receives a pre-determined % of end sale value of the land with planning for the risk and costs of taking the land through planning. Unlike with an option agreement the land is offered to the open market with a proper marketing strategy, meaning you know it has been market tested to achieve the best possible price.
Typically, the developer will take 20% of the agreed sale price plus their costs being reimbursed for getting planning. There would usually be a cap on the developer’s costs associated with getting planning permission. Both the developers and landowners’ objectives are aligned from the start to achieve the highest value for the land and thus both on the same side. If planning is not consented, then the developer incurs all the costs.
There are three core ways a developer looks to promote land through planning. The first and simplest, is if the land already complies with local planning policy either in the local or Neighbourhood development plan, in which case planning can be submitted immediately. The second is where the land doesn’t comply with local planning policy however there might be an angle to achieve planning on the site, for example if an local authority cant demonstrate a 5 year land supply to build enough houses or planning policy has become out of date. The third and longest way is by promoting the site as an allocated site within the local plan.
5. Enter into Joint Venture Agreement
The last way you can look at selling your land to a developer would be by undertaking a Joint Venture agreement (JVA) where planning is achieved on the site, the units are built out and then sold and then you revive a profit split in collaboration with the developer. This option is by far the longest as not only is planning required but the units need to be built and then sold however it is the option that would offer the maximum returns to you as you not only share in the planning uplift created on the land but also in the construction profits.
Typically, a developer and landowner would agree a base value for the land at its current use. The developer would then pay for planning at their cost and risk. Once planning has been achieved, the developer will coordinate the construction and sale of the units. The profit from the development is then split over and above the agreed value of the land and the planning costs incurred by the developer. This is typically 50/50.
If you are thinking of selling your land, hopefully this has given you a bit more of an insight into the possibilities of selling your land and how you might work with a developer to maximise the value of your site. Whichever option you choose purely comes down to what level of risk you are willing to take, the timescales for wanting to sell and expectations for selling the site and what you want to achieve from it. If you would like to know more about how Marches Homes are help you achieve the maximum value for your land then please don’t hesitate to get in touch with Mile our Land Director who would be delighted to go into more detail on each of the options and see how we can help you ensure you fully optimise the value of your land.
Miles Pattison-Appleton
Land Director
miles@marchehomes.co.uk
07772814468