MAKING THE MOST OF YOUR LAND
By Peter Johnson, Property Law Specialist with Nottingham
and West Bridgford solicitors Masser and Co.
If youve got land that needs to be sold now, can you still benefit if development takes place on it in the years ahead? The straightforward answer is: Yes. The real issue is now you do it, and there are a number of options to consider.
One method is to reserve the right to a further sum when planning permission is granted, although there is the risk, of course, of inflation which could serve to depreciate the value of the amount you receive.
As an alternative, it might be preferable to agree the payment of a percentage of the sites worth on the open market with a provision requiring the buyer to maximise its value.
The right to receive this type of further payment is known as overage but sellers need to be cautious, since a buyer might obtain a low-value planning permission, pay overage on it and then make a further application for a more lucrative permission.
You need to ensure, therefore, that the overage provision is wide enough to cover such a scenario.
Once a deal has been struck the most common route to secure the payment is by restrictive covenant that remains binding on any successors in title to the buyer. Another route is for the buyer to enter into a legal charge in favour of the seller although there may be a reluctance to agree to this since it could render the property unsuitable for use as security.
A third method is by retaining a ransom strip which prevents development of the land being sold but which grants the buyer an option to acquire the strip for the amount of the overage.
Landowners can also grant options to builders for development with mechanisms in place for determining the open market value of the land with planning permission with a percentage of that value then being paid to the seller if the option is exercised. These agreements are more attractive to both landowners and developers where there is a more immediate hope of development. The landowner commonly receives a sizeable option fee and the developer will pay less than the full market value if the option is exercised.
In short, any landowner thinking of entering into either arrangement should obtain detailed legal advice before taking the plunge.
For more information about the issues raised in the article, or any other property matters, please contact Peter Johnson on 0115 912 6666
