Selling land to a developer

HampshireSurrey

My family owns some farming land and was approached by a large property developer for quite a large site - around 100 acres. Our land agent recommended accepting their offer.

We did some research and found the offer was not to our advantage, and that our land agent was probably being paid by the developer. We backed out of the agreement.

It's clear that the site has potential, however, and we have since approached another, smaller development firm ourselves and have been pleased with negotiations on developing the land.

We are rather mistrustful of land agents after our earlier experience, and want to understand and keep tabs on the whole project ourselves. But now that we are negotiating a proposal for development we are aware that we don't have the necessary experience to know whether we are getting a good deal or a fair price.

If anyone could give us advice, we'd be very grateful:

- What are the advantages of using a land agent?
- How can we find one we can totally trust?

Thank you!

MB_moneysaver

Your starting point should be to ascertain the quantum of development that is achievable on your land as this is the deciding factor when it comes to the valuation. A land agent can not really give any credible advice on this. In addition, he only get his cut if he arranges the deal so he will be eager to make this happen at any price. If we are talking about a substantial sale price it might be worth getting the opinion of an Architect or a Planning Consultant to give you an idea of what you could get on the land.
Also worth considering is the difference between an unconditional sale and a subject to planning sale with a potential overage if the developer gets planning permission for a larger development.

HampshireSurrey

Thank you for your reply. I suppose I perhaps described it incorrectly. The proposal is for a strategic land development together with a developer.

They are suggesting taking over the costs of applying for planning permission and building, and we would receive a flat payment (for the first 20-30 units built) plus a set fee per unit built beyond that.

It's hard for us to estimate whether the price per unit is a fair one - it seems rather low, and the proposal suggests linking the price to the CPI rather than to house prices, for instance.

Any build would also be linked to building a certain number of social housing units, which the developer considers to be "cost neutral" ie not profitable and therefore involving no payment for the land, which we find hard to believe.

As you can see, there are various points to be clarified.

I take your point about a land agent having a stake in the outcome. I suppose the point is that we feel overwhelmed by advice from the developer and don't know who to turn to for independent advice.

What does a Planning Consultant do?

Thanks again!

MB_moneysaver

From your term "strategic land development" I gather that the land is not currently allocated for residential and it might take years to get a positive planning decision. A good Planning Consultant could give you advice on the existing planning policies along with the likelihood of obtaining planning and the possible quantum of development.


Now as the developer will be carrying all the costs for the planning, which normally for that size of land the cost will be in the hundreds of thousands, is reasonable to expect a decent profit. To get the best value for you my suggestion is to approach maybe one or two similar size developers to see if you could get a counter offer. As a very general rule, if they are offering you less than a quarter of the house sale price per unit then it's probably too low.


The affordable housing element does have some profit but it is indeed very small in comparison to normal housing. However, what you should be careful about is the percentage that the developer will negotiate with the planners. I am aware of situations were strategic land was involved that the Developer offered the Council 100% affordable housing in order to obtain the planning permission!


Hope this helps

Jessica29

I am a residential development surveyor and land agent and normally in this circumstance, we would arrange either a promotion or option agreement. It sounds like what you have arranged is an option agreement with the developer whereby they will pay you a set price per tranche or unit once they have planning permission. Option agreements tend to favour the developer as this essentially gives them sole purchasing rights to your land and therefore there is no competitive market situation to make them offer their best price.

We normally advise landowners to go for a promotion agreement, particularly in the case (like yours) where the land is not currently allocated for housing. In a promotion agreement, the promoter (normally a company with planning consultants/surveyors etc.) cover all the costs to achieve the planning permission before the land is sold on the open market to a developer. The promoter will take a percentage of the achieved land price (usually 10-20%). The difference here is that both you and the promoter have the same objective to achieve the best price for the land and are able to do so by creating a competitive situation between developers.

An option agreement is arranged similarly, so you will normally only receive 80-85% of the land value to cover the risk the developer takes, but the land value is set between you and the developer, who is likely to try and make it as low as possible.

I assume by your name that you are based in the Hampshire/Surrey region?

Let me know if you have any questions.

HampshireSurrey

Thank you, that sounds very interesting and is much more like a model we would feel comfortable with.

So what sort of companies would we be make a promotional agreement with? Land agents? Developers? If you had no objection to answering some questions on the phone or email, I'd be very grateful for the opportunity of getting some advice.

Jessica29

There are a number of specific companies set up who work on promoting strategic land. I'll drop you a PM and you can send across any questions you have

ethank

Getting planning permission for residential development especially in greenfield sites can be difficult. There are normally a lot of issues and many concessions that need to be made to get planning permission.

How well do you know your local area - are you sure that permission would be granted? I live on a site which was farming land, the developer originally wanted to start developing in 1993 and it took them several iterations of plans, appeals and a planning inspection until outline planning permission was granted in 2005, building started in 2007!

You need to think about this before entering into any agreements.