Six questions to ask when buying land for development

11
Jan

You may be an experienced developer or someone who is looking to buy a piece of land for the first time, but the goal will always be the same: to ensure a good return on your investment.

There are several factors to consider before settling on a parcel of land. Whilst it is often tempting to rush ahead and get your plans in motion, by taking the time to explore any potential issues at the very outset, you will dramatically reduce your exposure to risks further down the line and help maximise the profitability of the site.

To help explain in a bit more detail, Partner and Head of our Commercial Property team, Victoria Walton, has joined forces with Graeme Blenkinsopp, Managing Director of Wisemove Land, to identify some of the key questions which all buyers should ask themselves when deciding if a parcel of land is right for them.

 

Is this definitely the right location?

“Location, location, location,” applies to land as much as it does to properties. In development terms, it means keeping in mind the future marketability of your plots. Land in picturesque surroundings will not necessarily translate to best value plot sales; there are other factors to consider. Is the land in an area which is close to local amenities and benefits from good transport links? Is the land located within a growth area which has been earmarked for improved infrastructure soon and could result in considerable uplift to the development value of the site after you buy?

Whatever the size of the proposed development, you need to be confident that you will be able to sell the finished units at the best possible price. These are just some of the factors you must consider.


Are the boundaries clear?

It sounds obvious, but please make sure that you know the full extent of the land that you are buying. Just because there’s a fence or other established boundary in place does not necessarily mean that the seller owns all the land within that boundary and such features cannot be taken at face value. A survey of the land should be carried out sooner rather than later in order to identify any discrepancies between the title plans and the physical boundaries on the site and avoids any potential disputes at day 1.


What are the access arrangements?

When considering the boundaries of the site, careful attention should also be given to the current access arrangements and whether these will be sufficient for your future plans. Ideally, you should be looking for a site with direct access to the public highway and be wary of any site which is separated from the public highway by third party land (known as a “ransom strip”). Such parcels of land are often retained by the previous owner of the site as a means of restricting future development unless a “ransom” is paid, impacting on the profit margin.

If you intend to rely upon an existing right of way, you should pay close attention to the specific wording of the right as it may be that it’s only exercisable while the land is used for a particular purpose. Your solicitor will be able to discuss this with you, advising on whether the scope of the wording is strong enough legally to allow access to all eventual owners of the plots, or whether additional documentation will be required to permit this. In the case of any shared accessways, you should seek legal advice so you fully understand any maintenance obligations attached to the exercise of such rights so that these can be passed on to any future plot owners in the transfer documentation.

 

Are there any other obvious matters affecting the land?

As well as flushing out any potential issues with the boundaries, a land survey will also help to identify any other potential barriers to development, from overhead power cables, trees which may be subject to a Tree Preservation Order, or the tell-tale signs of a trodden footpath (potential public right of way) running through the site.

Whilst many of these matters are unlikely to be deal breakers, they may cost more to put right than you’re willing to spend and it is better to be aware of these issues at the outset, to avoid any costly surprises down the line.


Does the site benefit from any existing planning permissions?

It will usually be obvious from the price tag whether a parcel of land is being sold with the benefit of planning permission. If it is, you will need to explore the detail of the permission (including the expiry date!) to ensure that it is suitable for your purposes. It is often the case that land will have the benefit of “outline” planning permission only, meaning that the final details of the scheme will need to be approved by the local planning authority at a later date.

If you choose to buy a piece of land that does not already have planning permission in place, you should take specialist advice to make sure that you are aware of the time and cost which will be involved in pursuing planning, as well as the possibility that this could be refused. It’s not uncommon for buyers to enter into a contract for the purchase of land without having planning permission in place, but your solicitor will strongly advise that specific provisions are incorporated to ensure that completion of the purchase is conditional upon the grant of a satisfactory planning permission.

 

When should I investigate title to the site?

As soon as possible! Often, the full title investigation will be carried out after you have agreed your Heads of Terms with the seller and solicitors have been instructed. However, there are benefits to asking your solicitor to look over the title documents even earlier than that so that any red flags can be raised at the soonest opportunity. Title issues to look out for include restrictive covenants preventing future development, third party rights and easements and historic overage provisions (requiring you to share a percentage of any uplift in a value with a previous owner of the site). It may well be possible to deal with these issues by way of indemnity insurance or by building in specific solutions within the contract documentation itself but, in some cases, a title issue will be serious enough to stop the development in its tracks. Far better to find out early and know what you’re dealing with.

 

If you require further information, in respect of buying land for development or any other commercial property enquiry, please contact Victoria Walton at vew@swinburnemaddison.co.uk

 

This article was first published in our Autumn 2021 Prism Magazine. To read the publication online please click here

 

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