There is an underlying need for housing of all tenures (open market and affordable) and types in the United Kingdom, with the level of affordability (house prices to household income) varying region to region, nation to nation but currently is at an average of 7.8 times.  

This year started positively for the development land market and the sale of new homes until the arrival of the Covid-19 crisis.  
 
The demand for housing will reignite, regardless of Covid-19 crisis and the associated downturn in the economy in the short-term (expected in Q2 of this year), because there is an underlying need. It is likely that normality to a degree will return to the housing market albeit with some uncertainty on house prices, following the cessation of restrictions, as this is not a conventional recession like those that have gone before.

At least the large national/PLC housebuilders have announced that they are re-opening their sites having regained their supply of building materials and are building again albeit following Government guidelines.

The reasons why this demand will continue, beyond that of need, is that there are not enough planning permissions being granted by local planning authorities. As well as this, housebuilders cannot build fast enough to deliver the supply of new homes that comes close to matching demand from prospective home-buyers or for that matter hitting the Government’s annual target of 300,000no. new homes per year.

In 2019, 178,790no. new homes were built, which is a shortfall of 60% of the annual target. The 2019 figures are a 9% and 11% improvement on those of 2018 and 2017, respectively.  This year, delivery will be significantly reduced because of the Covid-19 crisis, the closure of building sites and cessation of construction.  

Local authorities are having to cut their costs to meet their budget constraints, which means that the Planning/highway and other relevant departments are under-staffed and determinations are taking longer than the statutory periods.  

Planning Committees are failing following Planning Officer’s recommendations for approval of planning applications, which leads to further delays with appeals against refusals and added costs to the tax payer’s purse and, in some cased awards of costs against them.  Local communities are also losing out on the delivery of affordable housing, Community Infrastructure Levy payments, Section 106 Agreement contributions, New Homes Bonuses and the creation of jobs – those directly related to the building of the new homes and those that spin-off as a result of this.

This will also affect local planning authorities land supply, as delivery of new homes is delayed.  Those that have 5-year housing land supplies will have to re-assess their position in light of the Covid-19 crisis or find that they will be challenged via planning appeals.

The Government, in this year’s Budget, has continued to support the housing sector.  The support includes (but is not limited to): -
  1. The extension of the Help to Buy scheme from April 2021 for first-time buyers; 
  2. Removing the Housing Revenue Account borrowing cap to enable local authorities to build new affordable (approximately 10,000no. new homes per year);
  3. The provision of a further £500 million for the Housing Infrastructure Fund (HIF) to facilitate the delivery of new homes; and 
  4. The provision of £653 million from the Affordable Homes Programme to deliver over 13,000 additional affordable housing starts by March 2022 and £1billion of new guarantees to support small and medium sized builders, implemented by the British Business Bank.

Homes England, a Government organisation, has we understand been active with the acquisition of 19no. sites (approximately 5,000no. new homes).

Opportunity

So, as a result of this backdrop, there are opportunities for landowners to bring forward their land for development – housing, employment and other uses.  

How do landowners access expertise to unlock latent value in their land?

Here at Greenslade Taylor Hunt, we have a specialist Development Land and Planning department in its Taunton and Exeter offices that offers architectural, planning and development services.  The firm has the expertise to assist.

Options available

If a landowner wish to take on the risk and cost of preparing and submitting a planning application, we can provide bespoke advice whether that relates to a single building plot, barns for conversion, Class Qs and other prior approval conversions, buildings for conversion and multiple plot sites (from 2no. upwards), including urban extensions and new settlements.  

We have Chartered Planners that can project manage all the consultants and the application from the initial concept to the delivery of the permission.  We can advise on the marketing and sale of the site as we have Chartered Development Surveyor, or on the build-out of the proposed development scheme as we have Chartered Architects that can advise.

If landowners do not want to do that, then we can advise on the alternative options available. Our aims are mutually aligned with landowners and that, generally, is to maximise the value of their land having been granted planning permission.  

There are some landowners that may wish to leave a legacy and provide land for social and community benefit- we can of course advise on that as well once we have identified the local need – affordable housing for local people, village hall, community shop, car parking, playing fields, play equipment, allotments etc.

The options available to landowners vary according to the type of property that they own, but include the following: -

  1. Unconditional Sale (US) – This type sale can either be of unallocated land, allocated land or sites which have been granted planning permission.  If the site that is marketed and disposed of is unallocated or allocated this will not maximise the sale price of it.  This is much quicker and simpler than that of a Conditional Sale (see below).  The housebuilder/land promoter will have absolute discretion on the preparation and submission of a planning application and the landowner will not retain any control over this.
  2. Conditional Sale (CS) – This type of sale tends to apply to sites that have been allocated within the Development Plan (Local Plan, Site Allocations Development Plan Document or Neighbourhood Plan) or where a limited amount of due diligence has been undertaken by the landowner, i.e. topographical survey, ecology or highways/access.  The housebuilder will have various obligations set out in the contract and the landowner will retain a level of control over the planning application that is prepared and submitted to the local planning authority.  The housebuilder and landowner will exchange contracts following agreement of terms, but completion of the sale is conditional on grant of planning permission for development and satisfaction of conditions within the contract.  The price is either fixed or subject to pre-agreed deductions with a cap and collar.  
  3. Joint Venture Agreement (JVA)/Building Licence (BL) - This type of agreement tends to apply to sites that have been granted planning permission for development. JVA/BL are used where the landowner not only wishes to benefit from an enhanced land value, but also wishes to share in the developer’s profit. The JVA usually involves setting up a special purpose vehicle whereby the landowner transfers its site into the vehicle and the housebuilder funds the build costs.  However, there are risks associated with JVA, particularly if the housebuilder charges the site and uses its value to raise debt funding and subsequently goes into administration or is liquidated. The BL is a variation of a JVA, whereby the landowner retains ownership of the site and the housebuilder has a licence to build.  There is a pre-agreed land value that will be paid to the landowner and both parties take a share of the developer’s profit over and above an agreed threshold.
  4. Option Agreement (OA) -  This type of agreement tends to apply to sites that are not allocated for development within the Development Plan. OA tend to be used by housebuilders and is effectively a 1-2-1 deal from start to finish.  It gives a housebuilder an option, not obligation, to buy the site following grant of planning permission.  The housebuilders will have various obligations set out in the contract and the landowner will retain a level of control over the planning application.  Following grant, the housebuilder will be obligated to serve a Price Notice, the price will be negotiated between the parties or determined by an arbitrator or expert (if they cannot agree) and on agreement it will, at its sole discretion, serve an Exercise Notice to buy the site based upon the price agreed or determined.  The price may be fixed or the greater of a formula/percentage of market value (after recovery of promotion/planning costs) or a minimum price.
  5. Promotion Agreement (PA) -  This type of agreement tends to apply to sites that are not allocated for development within the Development Plan. PA tend to be used by land promoters.  It, like a housebuilder, promotes the site and applies for planning permission. The land promoter will have various obligations set out in the contract and the landowner will retain a level of control over the planning application. The key difference is that the land promoter, together with the landowner, markets and disposes of the site in the open market following grant of permission, with housebuilders competing against each other to buy it.  As a result, prices achieved under a PA tend to be significantly higher than those under an OA. The land promoter takes a share of the net sale proceeds (after the recovery of promotion/planning costs) subject to a minimum return to the landowner.
  6. Overages/Restrictive Covenants – Overages and restrictive covenants can be incorporated into all of the contracts and agreements set out above.  Overages relate to an uplift in value between the enhanced market value/sale price and the original market value/sale price.  This can relate to a new planning application or variation of the original permission, including change of use, increased dwelling numbers, reduction in the percentage of affordable housing provision or change of tenure mix, reduction in Section 106 Agreement contributions and onwards sale to a third-party.  The length of the overage, the percentage share, the recovery of planning costs for a new planning application and the trigger for calculation vary agreement to agreement.  Restrictive covenants can be used, where there is retained land, to restrict the use of the site or limit the development of the land to that set out in the original planning permission.

There may also be a requirement to work with an adjoining landowner (or landowners).   This can be achieved via a Landowners’ Agreement, which sets out the basis upon which they work together and share in the sales receipt following grant of planning permission and disposal of the site.

With all of these agreements there are legal issues and various tax implications that arise and need to be addressed.

Conclusion


So, as a result of this backdrop, there are opportunities for landowners to bring forward their land for development – housing, employment and other uses.
 
If you are a landowner and need land, planning and development advice then we can advise.

The Partnership is a multi-disciplined property consultancy with a specialist Development Land and Planning Department with offices in Taunton and Exeter.  The department has Chartered Architects, Chartered Planners and Chartered Surveyors who deal with this type of work throughout the South West of England.

For further information contact Mark Chugg MRICS, Partner in the Development Land and Planning Department via 07738 426759 or email: mark.chugg@gth.net.