Case Study Flashcards
What is the difference between outline planning and full planning
An option agreement is a two stage process to to able to start construction, full planning permission is a single stage process.
Outline planning seeks permission from the local planning authority for the principle of a design including number of dwellings ,site layout and access. The applicant then has three years to seek approval of reserved matters which include all other matters such as drainage, design, scale, materials, highways public open space.
Full planning permission seeks approval of all matters within one application.
What price could have been achieved if you sold the site with the benefit of outline planning permission/self promotion?
Value would have to reflect the time, costs and risk put into achieving outline planning permission.
Having compared similar sites and spoken with a local agent I believe a market value of £600,000 could be achieved.
How did you come to a value of £15,000/acre for the land without the benefit of planning permission.
Used the comparable method, used local transaction wihtin the area and spoke with local agents. This price reflects the supply and demand in west somerset, scarcity value and hope value.
what are the risks associated with disposal of land of this nature?
There is risk to both landowner and developer.
No guarantee of sale for the landowner as it is subject to planning permission being gained and the developer still has an option not to purchase although this is unlikely.
Land owner has little control over the development and what planning permission is submitted, as my client lives locally to the development the risk of a bad reputation was important.
Land is not put on the open market meaning the best purchase price may not be achieved, it also does not allow for a completive bidding scenario.
Option agreements are costly for developers as they are responsible for all costs and there is no grantee that these costs will be recovered.
What comparable did you make between the offer received and others you had seen
Director had agreed a similar site in North Devon used this and made adjustments for different location otherwise nature of the site was similar.
Size of site, access, reference to local plan compatibility
What did you advise were the shortfalls of the offer?
The main and most important shortfall of the agreement was the low purchase price, looking at comparables it was not a competitive open market offer. This is due to the fact that the offer was on the basis of 14 dwellings including a number of affordable dwellings.
Believed a better offer could be achieved with a private developer who may look to avoid local housing allocation.
Larger site may have been harder to achieve planning and could have taken longer.
Reputation was important, the site did not appear to be sympathetic or in keeping with other developments. Wanted it to be received well by the public
- Talk me through the positives of self promotion and promotion agreements
Self promotion allows a landowner to remain in full control of the project, they are responsible for achieving planning permission and marketing the site. They remain in control of what is achieved. A landowner can set their own timescales which work to meet their aims.
Promotion agreements allow the land to go on the open market once planning has been achieved, this allows for the site to reach its true market value and potentially create a competitive buying scenario. The landowner is not bound to sell the land to the promoter once planning has been achieved, which gives them flexibitly. Lastly, both the landowner and promoter have the same interests and aims, meaning the promoter should work hard to achieve a good result for both parties. Promoter is reimbursed for the costs of achieving planning permission on the site.
- What appetite to risk would both options require?
Self promotion requires the landowner to use their own time and finacnes to implement planning for the site, if planning permission is not gained they risk wasting their time and monies. If the land owner is a layman and does not have development knowledge they require the expertise of professionals which requires a level of trust and more fiancnes.
The terms of a promotion agreement are often longer than an option agreement as it covers planning period and marketing period once planning has been gained. The promoter will deduct their costs of the sale price achieved, not maximising capital from the asset. If marketed during a weak market they may not achieve best value, may cause parties to agree to delay marketing which in turn delays the promotion period which would not meet the clietns objectives.
Both carry a degree of risk.
- Why did the positives outweigh those of the other two options?
I think its dependent on each individual land owner, its important to understand their position and objectives to be able to make these decisions.
My client was not in a financial position to implement the planning process herself, in addition ran the farming business with little help and was experiencing issues with the weather and had just experienced a poor harvest. Was not in the right frame of mind to take on such a project.
Client needed to raise capital quickly, understood that an option agreement can achieve a client payment quicker than a promotion as do not have to wait for marketing and conveyancing process.
Option agreement allowed client to choose the developer that would be designing the site and implementing planning permission. Reputation was an important consideration.
Ultimately we were aware that there were few private developers in west somserset, once we had started investigating development potential of the land we were both aware of Tregenna and liked developments we had seen and were aware of their good reputation locally.
- Aside from value and time, what other advice did you give your client about disposing of land in this way?
Advised the client that a degree of risk management should be considered with option agreements, that drafting heads of terms and negotiations to get the correct terms were important.
Advised on additional payments such as legal and professional fees, that it was normal practice for developer to cover these and considering my clients financial position this was of even more importance.
Consider the impact this would have on the retained adjoining land, it may increase the value of the land and potential of obtaining planning permission.
Also advised that it was important to understand clients tax position if the option agreement was successful.
- Did you advise on any sale values for the other options?
Advised that if a client wanted to sell land within 6 months we would sell without benefit of planning permission for approx. £90,000. This included an element of hope value.
If we went down self promotion route and obtaind outline planning permission on the site, to then market the site with the benefit of outline planning permsisiosn I would advise a guide price of circa £600,000.
Once the client had an understanding of the promotion agreement process they decided it was not suitable for them so did not get that far with research and potential values.
- Did you provide any advice to CGT and potential reliefs?
Sought advice from my clients accountant as I was aware that giving detailed taxation advice was outside of the scope of my competence and experience.
Having understood the client tax position, selling the land would provoke a CGT which we believe would be at 20% as client is a higher tax payer. There were two reliefs that may be suitable, business asset disposal reflier and roll over relief. As the client had no desire two cease trading immediately roll over relied seemed the most likely option.
Adivsed that the land in its current state, being farmed under farming business, would have 1005 IHT relied under APR but once turned into cash payment would be taxed at 40% on death. Had little implications to my client as they have no immediate family.
- What is the rationale for advising client to engage with a developer with an existing relationship with ENP?
Carhampton village boundary adjoins the Exmoor National Park boundary. Having worked in west somerset and being aware of the planning process I was aware that ENP would have an informal opinion at the consultation period on matter such as impact on landscape and heritage.
If a developer has already overcome this issues they will be able to reflect this within the design and it may mean less issues with consultation.
- What was talked about at the site meeting?
I ensured that the developer had an understanding of the clients position and objectives. That timescales were important.
Developer informed me of their background, some success stories and basic principles of what could be achieved at the site.
Developer asked if my client had any current or historic disuptes with any adjoining land owners and if there were any issues, such as flooding history, that they should be aware of.
- How would a development of 9 houses at this site for within the crietria for limited development?
Carhampton is designated as a primary village where limited development is permitted in certain circumstances
Limited development is defined as individual schemes of up to 10 dwellings that deliver about a 10% increase in the settlements dwelling numbers.
Therefor in principle 9 dwelling houses would be allowed but may meet an affordable housing provision. Understand that 6 or more dwellings would require affordable housing or a financial contribution to financial housing off site.
