When a developer buys subject to planning

Hoploz

I have seen this a few times locally, and am interested to know how it works.

It seems to go like this....

House with large garden goes on market.

House goes under offer.

Planning applications are made to demolish house and build several on its plot. Usually multiple applications with refusal after refusal before one finally gets granted.

Owner stays put waiting for two or three years or however long it takes to get a scheme granted permission.

Sale eventually goes through, at the original price level.

What I don't understand is whether there is some sort of huge deposit arrangement in these cases, or something. In other words, what makes someone who wants to sell hang around for the period awaiting planning and the sale only goes through years later, when prices have risen by hundreds of thousands? There must be more to it. Can anyone shed any light? In the couple of instances I've watched the house would be worth in excess of £1m by the time the permission gets granted, when the original price was around £700-800k.

eddddy

In simple terms, the seller and buyer can agree whatever terms they choose.

If you have an 'aggressive' developer and a naive seller (who doesn't take professional advice), perhaps the seller gets a bad deal.

If you have a fair-minded developer and a sophisticated seller, perhaps the seller gets a fair deal.

The general starting point would be something like a developer saying: "Your house is worth £600k as a house. I'll give you £800k if I can get planning consent."

Buyer and seller would sign a Conditional Contract, or perhaps an Option Agreement in order to protect themselves.

rosyw

I'm sure each case must be different but my experience of this is that when selling my last property, a large farmhouse with barn complex, I was paid a "holding fee" of several grand to take the place off the market for 3 months while they made inquiries with the council as to whether or not they would be likely to get planning to convert the barns. This was in an area where it was more a case of "who you know" etc., so when the planning officer visited the first question was "will it help you to sell if I tell them this should be no problem?" the answer to this was an obvious "yes" and the place was duly sold.
In my case I had lived there for over 20 years so knew the right people but suspect each case would be different.

davidmcn

Hoploz wrote: »

Sale eventually goes through, at the original price level.

Well, do you know that the total price paid was the original price level? Often there is an overage agreement so the seller is also entitled to x% of the developer's profit / uplift in value once planning is granted, etc.

Hoploz

davidmcn wrote: »

Well, do you know that the total price paid was the original price level? Often there is an overage agreement so the seller is also entitled to x% of the developer's profit / uplift in value once planning is granted, etc.

I don't know for sure, no. One example I know has appeared on the Sold listings for 700k which was way below the market value at the date it was listed. Others have never appeared, presumably as they have been purchased by companies
... Which is why I am asking if anyone knows what normally happens!

I wondered whether the house itself normally gets sold at x price, and the land is purchased separately and doesn't therefore appear on the Sold listings.

rosyw

Hoploz wrote: »

I don't know for sure, no. One example I know has appeared on the Sold listings for 700k which was way below the market value at the date it was listed. Others have never appeared, presumably as they have been purchased by companies
... Which is why I am asking if anyone knows what normally happens!

Is there a possibility that a proposed development of some sort nearby would have made a difference to the value? When I sold mine there was a proposal to built a huge incinerator less than a mile away which stopped anything selling for a long time, I was told I had "given away" my property, but to be honest I got the better end of the deal as prices locally have slumped dreadfully due the threat of the incinerator, even though it isn't now going to be built. Values are currently 60% below what they were in 2004, and are not likely to recover any time soon. The developers that bought my place and were hoping for a quick turn around are stuck with the place 4 and a half years on, having had it on the market on and off for 4 of those years at a price that would see them lose considerably.

eddddy

Hoploz wrote: »

... Which is why I am asking if anyone knows what normally happens!

There isn't really a "normal" way of doing these things. They're business deals - and every deal is negotiated individually.

I'm aware of three properties near me with current Options to Purchase.

I know of another two that were sold using Conditional Contracts.

And another that was bought speculatively by informal tender. (i.e. the developer bought it and then applied for planning consent.)