The Route to Development: what are your options?
Fri 11 September 2020
Do you own land on the urban fringe adjacent to the local town or village? Have you considered that your land may be suitable for development? James Thompson, Associate Chartered Surveyor based in the Sedgefield and Northallerton offices of youngsRPS, discusses the options that you should be considering to ensure that your land is an attractive prospect to developers.
At the date of writing, the government is consulting on proposals for the planning system in England which aims to streamline and modernise the process and ensure more land is available for development where it is needed.
If you wish to pursue development of your property, you should be working to raise its profile, rather than waiting to be approached by potential developers. Increasing the profile of your land can be as simple as putting forward planning representations to the Local Authority or instructing an agent to actively market the opportunity to develop your land, either on or off market.
There are essentially three main routes to obtaining development on your property:
- self-funding a planning application,
- securing an option agreement with a developer; or,
- entering a promotion agreement with a promotor.
Which is right for you?
A full planning application for a development site can be a costly exercise, particularly once the lead-in promotion surveys and design requirements are considered. Whilst obtaining planning permission for a development site yourself will bring greater reward in terms of your net land return, this needs to be balanced against the potential risk of not obtaining planning permission, or ultimately obtaining planning consent for a site that is too onerous to implement. Discussions regarding end values and the likelihood of obtaining planning consent are essential at an early stage.
The initial early promotion work of putting forward planning representations during Local Plan consultations is a relatively low-cost method of gauging a Local Authority’s response for a potential site. The representations are also a valuable tool to highlight your site to potential developers or promoters.
We would always recommend enlisting the help of a professional planning consultant to maximise your assets potential.
An option agreement gives the developer the right to buy the land from the landowner within a given time period (typically 5 to 10 years, depending on planning status). The developer will agree under the terms of the option to apply for planning permission at their own cost. If a satisfactory planning consent is granted, then the developer may exercise their option to purchase the land. The purchase price of the land is then agreed between the landowner and developer, with the developer receiving a percentage discount to reflect their risk return in obtaining planning permission. This method removes all the risk, however there can be conflicts in agreeing the purchase price in a ‘closed market’. In order to overcome conflicts in the negotiation process, it is always advised to bring on board a professional, skilled and qualified negotiator.
A promoter can be a developer or an individual and, like an option agreement, the promoter will agree to promote the land at their own expense and apply for planning permission. If planning permission is granted, the promoter, landowner and landowner’s agent agree a marketing strategy to sell the land. The proceeds from any sale are distributed between the landowner and promoter at the pre-agreed percentages, following the promoter being reimbursed for planning and other professional costs incurred. The advantage here is that the arrangement allows the land to put on the open market for competitive tenders, thus avoiding the ‘closed market’ associated with option agreements.
Obtaining advice at an early stage is key to ensuring that the terms of any agreement are favourable and that you understand the alternatives. A successful option or promotion agreement invariably has the developer paying for the landowner’s legal and agent fees, or, at least a proportion of these. The benefits of an option or promotion agreement is that planning permission is fully funded by the developer or promoter with no upfront costs incurred by the landowner.
The distribution of sale proceeds from a promotion agreement or the purchase price from an option agreement can often take place several years following commencement. Therefore, enlisting the help of a agent will ensure that each party is aware of its obligations and potential costs and return, resulting in a much smoother process.
youngsRPS offer a range of services enabling land to come forward for development, from our dedicated team of planners submitting planning applications and representations, through to a team of experienced surveyors negotiating option/promotion agreements and ultimately the sale of development land.
If you would like to discuss a potential development site, please contact James Thompson