Dealing With the Details is Key for Development
April 2023
By Mark Chugg, Partner
The world of the planning system and bringing forward greenfield land for development is complex. There are potentially, wide and traitorous oceans to navigate through from the home port to new world, unless owners take professional advice from the initial conception of the project.
In this article, Mark Chugg MRICS, Head of Development Land and Planning at Greenslade Taylor Hunt, stresses the importance of dealing with the legal issues and considering owner’s objectives and contractual terms before marketing strategic land.
There are a wide ranging number of legal issues that can be discovered and these should be dealt with prior to marketing, such as overages, easements, restrictive covenants, ransom strips, shooting rights, mining and mineral rights and other ‘defective’ title issues, which may require title indemnity insurance policies. There are also a wide range of capital taxes to consider: capital gains tax, inheritance tax, income tax and value added tax.
It becomes even more complex when there are agricultural tenancies and the need for amending agreements to facilitate access for surveys and ensure vacant possession on completion of the sale of the land. Also when there are multiple owners and assembling urban extensions and new settlements, with different forms of ownership (individuals, companies, onshore/offshore trusts, charities etc). In this instance a Landowners’ Agreement and equalisation of values and costs. These are subjects in their own right and this will be covered separate articles.
Both land promoters and housebuilders carry out the same work, promoting land through the emerging Development Plan for allocation, and on allocation, they prepare and submit a planning application.
There are, as you can imagine, a range of issues for owners to consider whether they are purely motivated by maximising the sale price/market value of the land, leaving a legacy or a combination these.
The aim and objective should be to maximise the value and minimise the costs of the proposed development scheme taking into account emerging planning policies, financial viability, Section 106 Agreement contributions, Community Infrastructure Levy payments, site constraints/opportunities and many other factors, such as landscape and visual impact, heritage, highways and access, drainage, ecology and trees, bio-diversity gain, sustainable alternative natural greenspaces and phosphate mitigation et al, that influence the level of development capable of being delivered.
In both legal contracts, the land promoter and housebuilder should be offering (amongst wave after wave of other matters): a term for the contract together with term extensions; a premium payable on entry into the contract and subsequent premiums (together with indexation) payable on term extensions; approval right to the owner on the planning strategy, pre-application enquiry, the planning application and the market strategy (in relation to a Promotion Agreement only); an obligation to submit a planning application within a given timescale, if there is a shortfall in the Council’s 5-year housing land supply; a cap on recoverable/deductible promotion, planning appeal costs; a price/market value, which is the greater of a formula based on a percentage or a minimum return/price and coverage of the owner’s reasonable and proper legal, agent and possibly accountant’s fees.
The Heads of Terms for a legal contract will cover a wide range of other equally important and very relevant terms, which set out the obligations for both parties.
The key difference between Promotion and Option Agreements comes into focus following achieving planning permission.
With a Promotion Agreement the interest of the owner and the land promoter are aligned and they have a common aim to maximise the sale price and their share of the net sale proceeds paid from the sale of the land in the open market to the highest arm’s length buyer.
With an Option Agreement the interests of the owner and the housebuilder diverge: the former wishes to maximise the market value and price paid and the latter wishes to minimise these under the negotiation and valuation procedure.
Hopefully within this article, you have found Mark’s insight helpful and if you would like specialist advice, please contact him via email at [email protected].