Short Term Land
A substantial proportion of development land is sold off-market. Our approach is not to fully advertise sites unless specifically requested by the client. With our extensive industry connections, we will approach the appropriate ‘buying pool’ of developers and housebuilders discretely but you may wish to carry out a full marketing campaign.
Selling off market may be the preferred route initially. It is not always necessary to put a for sale sign on your land or fully market the land in the press or online.
We may set a closing date for offers depending on the circumstances. Bidders will have to clearly exhibit that there is development funding in place for purchase and build out.
Purchasers are looking to buy strategic land on the following ways :-
We can advise in all situations.
1. Unconditionally i.e. Pay cash for sites
2. On an option or promotion Agreement basis
If not an outright unconditional sale, a purchaser may approach this scenario on an ‘Option’ Type Agreement basis. This is a typical Housebuilder’s approach and this may be appropriate for certain circumstances.
Alternatively, a Developer as opposed to a Housebuilder may approach the site purchase differently on a ‘Promotion’ agreement basis.
It is important to understand the difference.
In both circumstances it may be 5 years + or more before the actual land price is agreed. However, land value prevailing at today’s values is still important to know. With our experience and market intelligence we can input on this.
‘ Option’ Type Agreement –
A Party enters into a conditional contract or missive (as in Scotland) to buy land in the future once Planning Permission & other stipulated consents have been received by them are obtained.
This will also cover securing rights of access and Roads Construction Consent amongst others . In return for laying out substantial time and money on consultants’ fees a percentage normally 80-90 % of the market value is paid at the conclusion but they may not actually have committed to buy the land. The importance with this structure is that it is necessary to keep a close check the development costs put forward to ensure that these are not inflated as these reduce the land payment.
The other challenge here is that the ultimate price received may be a figure negotiated between 2 surveyors. As the figure in the contract is ‘market value’ at time of receiving all consents and this is actually an historic figure if there is no recent market evidence. Surveyors can be conservative and the vendor loses out. It is important to have a minimum price but even with this there are downsides.
Promotion Type Agreement
This is more commonplace in today’s market and it is used where a developer or promoter acts on the land owners behalf effectively and enters into a binding legal agreement or missive / contract to promote the land. Thereafter, once an allocation in the Local Development Plan or planning permission in principle is obtained, the promoter approaches purchaser housebuilders who bid for the site . This way secures best market price.
The land owner then receives a current market best price and the promoter takes a percentage of the receipts. The cost of promoting land through the planning process can extend to hundreds of thousands of pounds including professional fees and site investigations, to prove the land is viable and obtain planning permission plus all the management time involved in the process. (see our Blog section for coverage of this).
This is very different to the Option arrangement where the price is likely to be set by a negotiation between 2 surveyors but the same outlays are made in respect of professional fees and costs.
The key difference is that the promoter is working with the land owner aiming to maximise land price which is an actual land bid from a builder as opposed to a negotiation of a land value and to mitigate or reduce costs or abnormal costs associated with the development. An Option holder may not incentivised depending on the terms of the contract to reduce development costs. A close look at contracts is required to ensure land owners are protected.