Lots of undeveloped land and property owners do not realise that they could actually be sitting on a goldmine!
You will have all noticed the rapidly increasing number of new build developments popping up all over the country.
Some are being developed by large, household names and some, increasingly now, by smaller developers.
In the majority of cases, particularly the larger developments, the land will have been sold by a very lucky, and now wealthy farmer. A big part of a solicitors job is ensuring that landowners get the very best deal they can for their land. Often, landowners are approached by intending purchasers, usually developers, and they may have never thought about selling before.
Here are three safeguards that a solicitor can provide regarding undeveloped land:
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An option agreement
An Option Agreement is an agreement whereby a landowner grants a prospective purchaser, usually a property developer, an option for a fixed term of years to purchase their land. Once the prospective buyer has the option to buy the property, the seller cannot sell the property to anyone else during the option period.
The most common reason for a buyer to want an exclusive right to purchase land/property is because they wish to apply for planning permission to develop the site. This way, if they did not obtain planning permission, they would not be committed to buying the property.
Option Agreements are usually for a fixed term and it is usual that the eventual sale price is agreed at a percentage (usually around 85 – 90%) of market value once a suitable planning consent is secured for development. This is a way of ensuring that the land owner obtains a fair price for the land post–development.
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Overage agreement
Nelsons act for many land and property owners who have, quite correctly, accepted an offer of sale of their land. Imagine this:
Mrs X is 78 years old and lives in a little bungalow with beautiful views of the Derbyshire Dales from her kitchen window. She loves it there and has had many happy years there. But with an acre of land to maintain, understandably, she is struggling to cope. ‘We-Want-To-Build-New-Houses Limited’ have offered her £200,000 for her property and the land, and she has accepted.
One question jumps to mind from this example, which is “what would ‘We-Want-To-Build-New-Houses Limited’ want with a bungalow in the Derbyshire Dales?” The chances are, they want to knock the bungalow down and build a number of residential houses on the acre of land. Or, keep the bungalow, but still develop the rest of the site.
Overage provisions, or an Overage Provision, would protect her here. £200,000 is agreed for the sale, but with provisions in the transfer document that, should planning permission be obtained and implemented and the land developed within an agreed Overage Period, Mrs X (or her dependants) will be entitled to a percentage of any uplift in value of the land resulting from the new planning permission.
This is just one traditional circumstance, but if you are ever offered a sum of money for land which you imagine could be developed or be worth much more in the future, please seek legal advice. There are a lot of people out there looking for opportunities who may not disclose their full intentions!
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Land promotion agreement
Finally, there might be a Land Promotion Agreement. This has certain similarities to an Option Agreement.
The set up for a Land Promotion Agreement is that a developer, or, more usually, a land promoter, enters into an agreement with the landowner which states that they will apply for planning permission, then market the land for sale on the open market value of the property with the benefit of that planning permission and take a share of the sale proceeds.
Land promoters often scope out land which would be profitable if developed and approach a landowner. If a landowner is approached by a reputable promoter, such an agreement could be a win/win for them, as not only do they get a profit from their land, but they also don’t have any of the hassle of applying for any permissions and/or marketing the land.
Be cautious and take legal advice if ever you or any clients are approached by promoters, as you need to make sure you get the right deal!
How Nelsons can help
If you require any advice, please contact a member of the commercial property law team on 0800 024 1976 or via our online form.