Selling land for development
Selling land for development is a high stakes game. Don’t come to the table ill-prepared says Nick Woolley of Woolley & Co
- Understand your different agendas – they will affect negotiations
You’ll want as much money as you can make as quickly as you can get it – but developers play a longer and broader game. Land you sell may become one small part of their land bank in your locality and, if you’ve signed the wrong deal, you may find they never get planning permission for your land because they choose to promote one of their other local sites which looks an easier consent to win.
- Don’t enter into a straightforward option agreement – it could leave you high and dry
Opt for a conditional contract instead. This requires the developer to purchase your land as soon as consent is obtained and whether or not it suits them. It should also commit them to use ‘best endeavours’ to take forward the process of securing planning permission – often in accordance with target dates.
- Prepare yourself thoroughly for price negotiations – don’t let the developer run rings round you
Once the developer has achieved planning permission and wants to buy your land, they’ll issue a ‘Price Notice. The final price they offer you will be based on:
- The actual size of the site, gross and net. To get to the ‘net’ size of the site, the developer will doubtless put forward various ‘exclusions’ – ie land on the site which they suggest must be excluded from development area, perhaps because it’s required for community facilities or infrastructure.
Developers inevitably try to maximise exclusions in a bid to drive down the final net price. In some instances, up to 50% of the total acreage can be wiped off the overall size of a site in net terms by the time ‘undevelopable’ land is discounted – so be on your guard!
- The gross value figure per acre that the land is worth once it has planning consent in your locality. This is normally referred to as ‘the headline price.’ Developers generally make deductions of up to 10-15% to the headline price to cover the costs of their efforts to secure consent. It’s very rare indeed for a developer to offer a landowner 100% of the headline price!
- Any ‘extraordinary’ costs relating to the development of your site. For instance, because of geological conditions the site – or part of it – may need more expensive foundations. If part of your land contains a site inhabited by rare animals, such as newts, the developer may be required to create a new habitat for them on a different part of the site and even provide ‘newt crossings’ to encourage them move to their new home. This is expensive and time consuming work and developers will ask for additional deductions, based on their view of the costs of this work. You need to be able to understand the calculations they are making and be reassured that they are fair and reasonable
- Finally, they will take into account the type of development which actually has consent. As a general rule, the value of land intended for sizeable plots for larger detached buildings will be less than that for a site for a larger number of smaller, more easily marketable buildings so this will affect the price they offer you.
Selling land to a developer can, of course, be highly lucrative and is an increasingly attractive option for many farmers – and rightly so. But I’ve worked with many farmers over the years who have felt unfairly treated either by the planning process or by a developer – or both – so I’m just sounding a word of warning.
It’s a complicated business and not something to be tackled half-heartedly. Lack of preparation or understanding of the complex issues involved will be punished heavily – so invest in decent and well informed advice. There really is no substitute and the consequences if you don’t could be disappointing or even disastrous.
Contact Nick for a free initial consultation: 01638 721540 or mail@woolley.co.uk
Nick Woolley is a former Chief Land Agent of Prudential Corporation and a Director of its Property Division. Since founding Woolley & Co (www.woolley.co.uk), he advises landowners on the effective management of their land and property assets and is an expert on sustainable building
Farmer’s Guardian | 9 November 2007
November 9th, 2007
