Thinking about selling? Pick the right option for your land
There has been an increase in speculative planning applications for residential development in the region recently and sites such as farms and fields – previously thought of having very little chance of securing planning – are now being earmarked for development.
To avoid unnecessary expense, developers tend to secure sites with landowners by entering into contracts, also known as land options. This gives the developer the right to buy the land at a certain point in the future, usually when planning permission is granted.
Land options tend to be more complex than land sales, so if you are considering entering into one, there are some factors to consider.
- Timescale. Depending on the size and complexity of the site, it can take months or even years for the planning process to complete. An option will add restrictions meaning that the landowner may not be able to deal with their land or sell it.
- Option Fee. Sometimes, because of the restrictions placed on the land, the developer will pay an option fee to the landowner – normally deductible from the purchase price.
- Option Period. The developer will spend time and money trying to secure planning. Often the option period is set in line with the planning process, so if successful, completion can be within a few weeks of planning permission being granted.
- Price. There are various pricing structures, fixed prices, open market value, or price per house. Depending on the size of the development affordable housing can also be included in this calculation. It is possible the landowner will look to include a minimum price.
- Security. It is not uncommon for the purchase price to be paid in stages. If the land is transferred before the whole price is paid the outstanding money needs to be secured.
- Parties. Developers may look to develop a site which is made up of different owners. In these cases, the division of sales proceeds should be considered.
- Fees. There is no certainty whether planning permission will be granted and landowner’s can be exposed to abortive costs. As a result, developers sometimes pay the landowners’ fees, or at least a contribution towards them, often with them being deducted from the purchase price.
If you’re a landowner considering a land option, it’s advisable to secure the services of a solicitor to navigate these issues and deal with the negotiation. Contact Alasdair Inglis at Alasdair.Inglis@raworths.co.uk
Published on 4 October 2019