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Selling land for development - what farmers need to know

“Landowners should think carefully and seek good advice on what is the best route to securing maximum value and the earliest possible cash receipt for their land," said David O’Reilly, land director at Ainscough Strategic Land.

 

"Do the wrong deal and they face a potential double-whammy of a lower price and slower payment terms.  That is an easier trap to fall into than you might think."

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So what are the options?

 

“Essentially, there are three,” said Mr O’Reilly.

 

1. “A landowner can promote their land through the planning system on their own account but it’s a very risky, expensive and time-consuming process that requires a great deal of expertise. I would generally advise landowners to find a partner to help manage it for them.

 

2. “An obvious route is to sign an option agreement with a house builder and let them take on the cost and risk of securing planning permission. That investment is substantial so this approach has its appeal, but it also throws up a big pitfall. The house builder is incentivised to drive the price down as much as possible and link payment to the draw-down of the land.

 

3. “The third way forward would be to sign a land promotion agreement with a company such as our own.

“That places all the cost and risk on the promoter’s shoulders and they only recover their costs and a share of the sale value at the end of the process. It means that they are incentivised to secure the maximum value for the land so their interests are absolutely aligned with the landowner’s.

 

“The land is sold via an open-market bid process which is very transparent and ensures the landowner obtains the absolute maximum value for their land.

 

Advice

 

“I would urge farmers to take good advice, perhaps from a local solicitor or surveyor familiar with such transactions.

 

“This is not something to rush into, but to consider very carefully. The planning process can be very long-winded so it is important that landowners select a partner they trust and feel happy working with for some considerable time.

 

"We have seen on countless occasions just how beneficial a capital receipt can be for rural businesses and it’s important to maximise it.”


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Should farmers be wary of strategic land promotion?

 

James Cordery, associate partner, planning and development team, Carter Jonas, said: “Strategic land promotion has become big business. Increasingly, landowners are receiving direct approaches from a range of developers, land promoters and master developers with proposals for garden settlements. Handled properly, such advances can still present that so-called ‘once in a generation’ opportunity.

 

“There is no one size fits all approach to strategic land, and it is crucial to ensure that the strategy adopted caters to a landowner’s specific needs and circumstances.

Cashing in without selling up

 

Development opportunities are also available for those who wish to retain control of their land or keep it in the family for future generations.

 

Rob Hindle, executive director at Rural Solutions, said land which was near a large infrastructure project could offer short term opportunities through lease agreements.

 

Pop-up cafes

 

“Infrastructure projects will require land to act as materials compounds or car parking for construction gangs.

 

We have seen pop-up cafes, areas for storing pipes or site cabins – all bringing short term gains for landowners,” said Mr Hindle.

 

There would also be demand for amenities and other services to serve new housing developments on the urban/rural fringe, which farmers could choose as diversifications.

 

“Everything from adventure play spaces, plant nurseries to cafes or green burials, if there are 15,000 to 20,000 houses coming into a locality there will be demand for these things.”

James Cordery's top tips 

James Cordery's top tips 

“Always start by asking whether a landowner can take forward the planning promotion themselves. Whilst this is the best strategy for ensuring a landowner maximises the return, the significant investment and risk profile is such that it is often appropriate to consider the procurement of a development partner instead.

 

"They will bring expertise and funds to the promotion of the land, in exchange for a share of the uplift in value once planning permission is secured. Nonetheless, a whole range of different options can be appropriate depending on the circumstances, including freehold sale with overage, a conditional or option agreement with a developer or something more bespoke.

 

“Other key factors landowners should consider before committing themselves include the proposed planning strategy, the timescales, the potential requirement for collaboration with neighbouring landowners as well as prevailing tax regimes and financial credibility of the prospective development partner.”

 

What is your advice on starting these negotiations?

 

“Do not assume the first approach will present the only, or best, opportunity, either in terms of development partner or the commercial terms offered. Take independent advice on the planning situation, as you should have a planning strategy in mind before entering into negotiations so that any agreement reached reflects the likely shape of the land promotion and the outcomes you seek to achieve.

 

“Always take advice from experienced professionals, as these are complex transactions where a multitude of checks and balances will be required to deal with both expected and unexpected matters. If other landowners are involved, try to join forces through a collaboration before entering into any agreement with a development partner, to avoid ‘divide and rule’.”

How can I get my land included in the local plan?

The Local Authority plan process operates on a five-year rolling basis.

 

The allocation of land for housing and commercial development is different and you would need to have a clear idea of what type of development you wanted to offer your land for.

 

Local authorities seeking land will often put out a ‘call for sites’ via their website and, if you know where to look and how to monitor for such announcements, you could attempt to submit your site as part of a call for sites. It is worth noting, however, that to influence the local plan process requires a sound understanding of national, regional and local planning policy and many landowners choose to work with a partner who can navigate this process for them.

 

Should I obtain planning permission myself?

In any instance, the value of your land will be directly related to what the land can be used for and land values increase significantly as they move towards full planning permission. Whilst it is possible to seek planning permission independently, the technical elements are now significant and the old days of a red line plan are now long gone.

 

Even a simple planning application can cost from £20,000 - £50,000 and large a development scheme can attract costs of up to £1,000,000 so it is not a task to be undertaken lightly.

 

The main options for a landowner who decides not to seek planning permission themselves is an option or promotion agreement. In the case of an option agreement, the partner has the ‘option’ to purchase the site with the price being agreed (usually when planning permission is obtained) whereas, in the case of a promotion agreement, the site is ultimately sold to the highest bidder.

 

Can I farm the land while it is under an option or promotion agreement?

 

Normally you can continue your usual farming activities and continue to receive income from the land under an option agreement or a promotion agreement. However, any changes to different uses, or to allow lettings, would require specific negotiation.

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