A Q&A session with the Worcester development team
Ever wondered about the ins and outs of strategic land and development? Here’s a summary of the most common questions our agents face from clients, along with some handy tips to navigate this complex world.
I’ve had an approach from a housebuilder or promoter and not sure what to do?
- Government push for housing delivery: With the government pushing for more housing, there’s a shortage of supply and increased housing requirements
- Increased approaches: Housebuilders, promoters, land buyers, and others are reaching out to landowners directly
- Overwhelmed landowners: Many landowners are unsure whether to explore these opportunities, sometimes feeling overwhelmed by multiple approaches
- Convincing offers: Offers can be convincing but often lack detail, making them difficult to navigate
- Attractive value: The thought of increased value is appealing, but without proper advice, landowners can be left disappointed
- Complex deal structures: Deal structures, planning strategies, and price structures can be hard to understand
- Taxation complications: Taxation is often a late consideration but can complicate matters further.
- Professional assistance: An experienced agent can help you get the right deal that suits your objectives, with thorough consideration for your future.
What is ‘Strategic land’?
Strategic land is land not allocated for development but considered to hold potential due to its location and planning policy context. It may require promotion through the Local Plan to achieve allocation or have development potential through a speculative planning application due to housing supply shortages or a deficient local authority plan.
What is a ‘land promoter’?
A land promoter is a business organisation that specialises in obtaining planning permissions on behalf of landowners, incurring all costs at risk in return for a share of the sale proceeds. They promote the land, undertake necessary surveys, and submit the planning application. If refused, they can appeal the decision. Once planning permission is achieved, the land is sold, usually on the open market to a housebuilder. The promoter gets reimbursed for costs and takes a pre-agreed share of the sale proceeds, with the remainder going to the landowners.
I have land with potential and a willing buyer, why do I need professional advice?
Buying structures vary significantly, impacting timing, costs, and pricing structures. Most deals won’t have a fixed price but will include a formula with subjective inputs, leading to misunderstandings. Agreements are generally long-term with significant value attached, making professional advice from a development agent, solicitor, and tax advisor essential.
Why is my pricing structure in my agreement so complex?
Exact prices can’t be known before achieving planning permission, so a basis of value, price structure, and formula are usually agreed upon as a framework for later price agreement. Without flexibility, buyers apply risk, usually resulting in lower offers. Flexibility in costs, planning outcomes, unit numbers, density, and infrastructure costs are crucial.
What is ‘market value’?
Market value, as defined by the Royal Institution of Chartered Surveyors in their Global Standards ‘red book’, is the price achieved from a willing buyer after proper marketing and exposure by a willing seller, both acting with full knowledge and without compulsion. It’s generally evidence-based with reference to similar transactions but is ultimately subjective, leading to differences in opinion when agreed between a buyer and seller without open site offering.
I am not clear on the terms of the agreement I have signed
Strategic agreements are complex, and this is common. While definitions are often provided, navigating the document can be difficult, and professional advice is usually recommended.
Planning permission has been granted, when will I get my money?
Agreements vary significantly, and understanding your agreement is critical. Option Agreements usually have stated purchase timings but depend on price agreement. Promotion Agreements require the site to be marketed and a buyer found, with the agreement allowing for this.
What is a ‘monitoring fee’?
Monitoring is carried out by your instructed agent, liaising with the developer or promoter to ensure they act according to the agreement and seek every opportunity to obtain planning permission. The monitoring agent often uses a planner to provide independent thoughts on planning strategy.
Why is thinking about my tax position so important?
Taxation needs to align with your deal structure for efficient handling of sale receipts. Timing of receipts and use of tax reliefs can significantly impact cash in the bank. For disposals with deferred payments, it’s crucial to ensure you can pay tax liabilities. Early planning for reinvestment of receipts is also essential, aligning deal structures with landowner objectives. Promotion Agreements can initiate an ‘Option to Tax’ the land to reduce VAT implications. Ownership structures, landowner objectives, sales timing, and deal structures are important factors to consider.
What is ‘affordable housing’?
Affordable housing isn’t just cheaper, smaller, lower-spec homes. As defined in the National Planning Policy Framework, it includes:
- Social rent: Owned by a registered provider with rent set according to government policy, remaining affordable for eligible households.
- Shared ownership: Part-owned by a registered provider and rented at a discount, with the remaining part owned by the occupier, who can purchase the remainder.
- Discounted ownership: Housing sold at least 20% below market value to eligible parties, usually local residents or workers, with the discount continuing to succeeding buyers.
Affordable Housing is controlled through S106 agreements, with specifics varying between sites and authorities.
What is net developable area?
Commonly referred to as ‘NDA’, it’s the area used for building houses, gardens, garages, driveways, and other items sold to homeowners. Roads, pavements, communal playgrounds, green spaces, and flood alleviation ponds are usually not considered NDAs.
What is green infrastructure?
Green infrastructure includes natural areas like parks, woodland, ecological areas, and other plantations.
What are ‘abnormal development costs’?
Referred to as ‘abnormals’, these are unexpected or unknown costs that arise during planning stages, varying from site to site. They include demolitions, contaminated land issues, additional foundation requirements, infrastructure upgrades, access improvements, archaeological works, drainage requirements, and build regulation requirements. These costs are considered during valuation and often need assessment and agreement by independent cost consultants during option price discussions.
What do S106 and S278 mean?
S106 agreements are legal agreements between the developer (sometimes the landowner) and the local planning authority, documenting contributions to the local area. They include financial and non-financial contributions like education, healthcare, highways, open spaces, sports pitches, new schools, and hospitals. S278 works involve public highway modifications to facilitate new development, including junction modifications, new access points, roundabouts, and traffic signalling.
Both S106 and S278 works significantly impact land value and require proper assessment during planning and prior to agreement.
My land has got planning permission, but I don’t like the price I’m being offered?
This is an agreement-specific question requiring thorough assessment. Most agreements include a price structure and dispute resolution mechanism, but professional advice should be sought.
What is BNG and how does It affect my development land?
Biodiversity Net Gain (BNG) is a concept from the Environment Act 2021, mandatory since 2024. Sites must deliver a 10% increase in biodiversity units from pre-development levels. Pre-development assessments by an ecologist are required, with a plan submitted as part of the planning application demonstrating how the uplift will be achieved and enforced. Solutions are site-specific, usually involving habitat creation, enhancement, or purchasing credits for uplift delivered by another party.