Land for development - Should I sell my land or get planning permission first?

This is a guest blog by Ridley & Hall Solicitors. Ridley & Hall is an award-winning firm of solicitors, based in Yorkshire, but with a national reputation. The company was one of the first firms in the country to gain accreditation in the Law Society’s Conveyancing Quality Scheme, meeting the highest possible standards for the residential conveyancing process.

If you own land which you think is ripe for development you may ask yourself if you should apply for planning permission yourself or leave that to a purchaser to deal with. Certainly, whether you are selling with or without the benefit of planning permission can affect the sale price but it can also make a big difference to the types of offers you get for the land, some of which may not be a straight forward sale at all.

Firstly, if you are thinking about selling land for development you should speak to a local commercial estate agent who should be able to advise you about the differences in values for land in your area that are sold with or without planning. Based on the agents' advice you can then investigate the costs and likelihood of obtaining planning permission and weigh the cost against any benefits of obtaining planning permission yourself before you sell the land.

Depending on the size of the land it may not be prudent to obtain planning yourself for a number of reasons:-

  • The costs of planning permission for a bigger site may outstrip the amounts you as a seller are willing to risk;
  • If you do get planning for one particular use/development the potential pool of purchasers for the land will be diminished to Buyers looking to develop the land strictly in accordance with the planning permission. If you obtain planning permission for new houses, any developers looking for a new commercial site may be deterred and vice versa;
  • Applying for planning permission is not a sure-fire thing and could be refused, land with a refused planning application could be less attractive to purchasers or negatively affect the value (check with your commercial estate agents for their thoughts);
  • Applying for planning can be both expensive and time-consuming, particularly for bigger sites;

If you decide to sell your land for development without planning permission already in place, expect any potential purchasers to seek a none standard sale agreement. Most developers will not want to buy the land from you outright and risk having planning refused so instead they will likely offer one of the arrangements below:-

Contract Conditional on Planning Permission

This is a sale contract for the land whereby the Buyer will pay a deposit (usually a percentage of the sale price) and the sale will only complete if the Buyer is able to get planning permission granted for the site. These contracts, while very common, can be quite complicated and usually allow for the return of the deposit if planning permission is refused or if the planning is granted but imposes costly planning conditions that are unacceptable to the Buyer.

The benefits of this type of contract to a seller are:-

  • The Buyer is tied into the transaction if they get planning permission granted;
  • The Buyer usually will obtain planning permission at their own expense and effort (but you can also have contracts where the Seller applies);
  • There will be time limits in the contract so that if planning is not obtained by a fixed date, both parties can walk away and the seller can remarket the property.
  • The buyers have to commit to the transaction by paying a deposit upfront.

The downsides of these conditional contracts to sellers include:-

  • Depending on who agrees to apply for planning, the Sellers will be left waiting for the Buyers to arrange planning permission and may not know for certain if the sale will complete until a planning decision is given.
  • What is and is not an acceptable planning permission can be quite subjective and can result in buyer and seller disagreeing about what is an is not acceptable.
  • While a deposit can be paid by a Buyer there can be situations where it must be returned for example if planning permission is refused.

Option Agreement

This is a contract whereby the Seller gives a Buyer the right to buy the land at any time within a fixed period of time. If the Buyers decide to buy the Land during that option period, the Sellers must sell and the Buyers must buy at a fixed price or a price agreed by a formula.

This is a common offer made by Developers that wish to carry out due diligence on the site and obtain planning permission and any other consents that may be required for a development. The Buyers will sometimes agree to pay a small premium for the option to be granted which can be credited against the sale price if they subsequently buy the land.

The benefits of this type of agreement to a seller are:-

  • Once the option is granted the Buyers do all the work in preparing the consents and planning permissions for the Land at their own expense.
  • The details of the sale are agreed at the outset and once the developer calls the option and arranges to buy the land, the process can be quite swift at that point.
  • The Seller can get a premium from the buyers that is kept even if planning permission is refused or the Buyers decide not to go ahead.
  • If the Buyers obtain planning permission but do not call the option, the seller still owns the land, now with the benefit of a planning permission.

The downsides of option agreements for sellers:-

  • Once agreed, the Buyer is in control of when (or if) the purchase of the land is triggered, the buyers may not decide to call the option and buy the land at all.
  • During the option period, the Sellers will not usually be able to sell, lease or charge the land until the option period is over, so the Seller is left waiting for the Buyers.
  • While there can be obligations in the option agreement for the buyers to make legitimate attempts to obtain the consents and planning permission that they require, there is no guarantee that the Buyers will buy the land or apply for the consents during the option period.
  • If planning is refused and the buyer does not buy the land, the seller is left with land with a refused planning permission which could negatively affect attempts to market the land again.

Overages

This is where the Seller sells the land outright to a Buyer. The Buyers agree that if planning permission is obtained in a fixed “overage period” after the sale (for example 20 years) then the Buyers will pay a percentage of the uplift in value for the land with planning permission to the Sellers. These agreements are more common when the buyer does not immediately want to develop the land but may want to in the future. The downsides are that overages can be tricky and there are a number of notable stories of buyers refusing to pay overage monies to sellers due to a technicality. It is important then that you use a Solicitor to prepare your overage documents for you and advise you in detail about the risks.

These are only a few, possible arrangements for selling land for development and each method will affect the price and value you attract in your offers. The best advice we can give is the moment you are thinking of selling land for development, speak to a commercial estate agents and call us at Ridley and Hall Solicitors to discuss your options. While deals that you arrange between yourself and any buyers are down to you, it is absolutely essential that you discuss them with a Solicitor to ensure they are feasible and will meet your requirements.

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