Making an informed choice
Posted by Susan Hart on 19th April 2012
When advising landowners on diversification, it is always important to explore all possible alternatives. For example if a landowner has a redundant farmyard which is ripe for development, how should he go about unlocking the cash value of it?
When it comes to the method of developing the farmyard, the landowner needs to consult an experienced land agent and perhaps an architect or planning consultant, as well as his solicitor and accountant.
Whatever route is chosen, the landowner must ensure that the development is tax efficient. This could involve the landowner giving the land to the next generation (whether directly or via a trust) prior obtaining planning permission or agreeing to sell.
If the landowner is keen to get involved, and has the appropriate time and money to invest, then he may decide that the best way to develop the farmyard is for him to:
- employ an architect/planning consultant to draw up the plans and obtain the planning permission;
- employ the services of a contractor to do the construction work; and then
- (with the assistance of his agent and solicitor) sell on or let the developed property.
If the land is going to be sold or let and the landowner oversees the development programme, then he should ensure that he obtains appropriate insurance policies or warranties, acceptable either to purchasers of dwelling units or tenants of business units, as without those specialist certificates, it may be difficult to transfer or let the units. If the farmyard is subject to a mortgage, then consent must be obtained from the lender both to the obtaining of planning permission and to the carrying out of the building works. One advantage of this alternative is that the landowner retains control and, ultimately, all of the profit.
If the landowner does not have the time or the spare cash to invest in the project, then he should consider taking advantage of the expertise of a specialist developer. If the landowner does not require substantial monies immediately, perhaps the best alternative would be to grant the developer an option to purchase the land, which the developer can exercise once it has obtained the appropriate planning permission. The monies to be paid by the developer to the landowner should reflect a high percentage of the market value of the property, at the time the option is exercised.
If the landowner requires money more immediately, then the landowner should consider selling the land to a developer for the current market value, but reserving overage. If the landowner does this, then, if the developer obtains planning permission for the development of the land within a given timeframe, the developer will have to pay to the landowner a certain percentage of the uplift in value of the land on, say, the obtaining of planning permission or the implementation of it or on the disposal of the property subject to that planning permission. The advantage of this route is that the landowner gets a huge cash injection up front and will hopefully receive a percentage of any future uplift in value.
Whatever route is chosen, timely advice from the landowner’s professional team will, in itself, reap dividends.