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Farming Land for Elephants Farming Land for Elephants

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Apr 13

Farming Land for Elephants

Written by Farming Land for Elephants

Elephants are in fashion. Be it oil companies, miners or builders they all want elephant sites.

The economies of scale provide the incentive to search for these sites. In the case of the house builders, the more units there are, the less the cost of the infrastructure per unit.

However, with development land the Government may have another reason. Economists say house prices are still too high. The average house price is about 5 times average earnings against a long-term average of 3.5 and this is after house prices have fallen. In nominal terms, apart from in London, house prices have not recovered their 2007 peak values, but when inflation is taken into account locally they are down between 25% and 30%. Note that even low inflation of 3% halves the value of money over 24 years.

The economists’ arguments, however, forget about demand. Restrictive planning laws and years of low supply have led to a huge pent-up demand and we all know what that does to prices. So a few elephant sites could go a long way to alleviating the political tensions. This is why, for instance, we are seeing applications for 600 houses at Pennypot Lane, Harrogate and 700 houses at Manse Farm, Knaresborough.

However, there is a problem. Elephant sites by their very nature will usually be made up of land belonging to more than one owner. In fact, it is quite common for a dozen or more landowners to be involved and this can lead to practical difficulties. Some landowners may think their piece of the jigsaw is more valuable than their neighbours’ for a variety of reasons. It may form the access, it may be used for housing rather than infrastructure – in fact, the list is endless. Throw in a few awkward personalities and a deal may never be done.

There is a way of dealing with this. The standard Option Agreement has a purchase price formula which usually takes the market value of the land with the benefit of planning permission and deducts the development costs and the Option fee paid at the outset.

If the Option land is to be developed in conjunction with adjoining land as part of a comprehensive scheme, you can include an equalisation clause.   This applies a more complex pricing formula. The market value is calculated by reference to the whole site and then equalised by dividing the area of the Option land by the total area of the development. Infrastructure costs are also apportioned because they benefit the whole site regardless of which piece of land they are built upon.   So the landowners get a fair share of the whole in proportion to the size of their parcel of land.

You need robust land agents and solicitors to manage the negotiations. People that can look beyond the characters involved to the bigger picture because if you get it wrong elephants never forget.

William Kinread is a partner at Raworths LLP and a solicitor specialising in agriculture. To contact Raworths telephone 01423 566666 or visit our offices at Eton House, 89 Station Parade, Harrogate, HG1 1HF. Alternatively, you can email william.kinread@raworths.co.uk.

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