Self help for landowners - all is not lost despite the downturn

01/04/2009

By Gilbert Green, Partner and Head of Commercial Property & Development.

One of the inevitable results of the lack of available credit is that house sales slow down. As a result, developers and housebuilders slow down production, or mothball sites.

This slowdown in cashflow means that there are few who are able to buy potential new development sites.

This is a sad situation, given that new homes production was already far short of Government targets. When the market re-emerges, there will be a pent-up demand for housing.

Demand for 'ready to build' sites

The current situation is likely to continue for the foreseeable future, so there will be high demand for 'ready to build sites' when the recession ends. This is now the time for landowners with potential development sites to take steps to bring forward their promotion. Many Local Authorities are undertaking preparation of a Local Development Framework (LDF), which has replaced the old Local Plan. Despite the different approach to site allocation it still remains imperative that early steps are taken to ensure a site's development potential.

Site promotion

If a landowner is in the fortunate position of being able personally to fund promotion of a potential site, now is the time to consult with your lawyers and land agents.

If funds are not available for site promotion a landowner can still achieve the same result by entering into an arrangement with a developer to undertake the task, in return for the developer having the right to share in the increase in the value of the land. Many developers are still entering into such arrangements in the current market.

Development agreements

The developer's share can be covered in a number of ways. One is by the developer being granted an option which gives the developer the right to buy the site following the grant of planning, but at a discounted price. Another is by collaboration or promotion agreement where the landowner sells after the grant of planning and pays the developer an agreed percentage of the proceeds.

Other disposal opportunities

There are still opportunities to dispose of land for development even if it is not allocated in a statutory plan. The main examples are where the land is dedicated for local needs, rural or affordable housing.

Renegotiating existing deals

What if the landowner has already entered into an arrangement with a developer, who can no longer afford to buy? One of the results of the current financial situation is that many such deals are being renegotiated or restructured. The right way forward will inevitably depend on the circumstances of each particular case, but it may well be possible to achieve a satisfactory outcome for the landowner by, for example, taking a smaller up-front payment in return for a later share of profits.

Achieving an acceptable return Cooperation, lateral thinking and proper negotiation should still enable all parties to achieve an acceptable return. So the prudent landowner will still need to be alert to the possibility of planning permission. With the right professional advice good results can still be achieved.