Frequently asked questions
I am considering buying land for development purposes, are there any restrictions on what buildings may be constructed upon the land, and what such new buildings may be used for?
Unfortunately, there are many restrictions upon building and use of land. The two most common restrictions are those provided for by statute, namely planning legislation, and those that are provided for within the title deeds to the property to be developed.
With regards to the statutory restrictions and planning legislation, any new development or use will require planning permission. There are certain circumstances where changes of use are automatically permitted, though these are very limited. There are statutory provisions whereby the planning authorities remedies for unauthorised uses or building works are unenforceable because of the passage of time. In relation to most new developments any new use or new building works will require planning permission, and it is advisable that before committing to the purchase of land for development purposes, approaches are made to the planning authorities to ascertain whether planning permission is likely to be granted. It is also very important to decide whether you would wish to be bound to purchase land for development purposes without the guarantee of obtaining planning permission or in deed actually obtaining planning permission first. In such circumstances it may be appropriate to negotiate and agree to a conditional contract for the purchase of land, a condition to be satisfied being the obtaining of satisfactory planning permission for your suited use.
Other common restrictions on development are contained within the title deeds and are known as restrictive covenants. The law surrounding restrictive covenants is rather complex. Restrictive covenants are typically created on the disposal of land by neighbouring land owners to protect their interest in their neighbouring land. There are detailed provisions as to whether restrictive covenants remain binding after the passage of time. Restrictive covenants typically restrict the use of land or the carrying out of building works upon land. Restrictions on use, may well be to prevent a Property being used, for instance for the sale of alcohol, to protect the income and neighbouring business that is used for similar. Sometimes restrictions on building are imposed to keep land open and the amenity of neighbouring land protected. Whenever such restrictions or restrictive covenants are revealed by the title deeds, this may not mean that development is unachievable. There may be methods to circumvent the restriction. It is possible to obtain indemnity insurance in some cases against restrictive covenants being enforced. This involves the payment of a one off premium and an insurance company will insure against a party seeking to enforce the restrictive covenant and prevent your use of building. This area of insurance can be explained in more detail if necessary. There are alternatives to seeking insurance, such as seeking the Lands Tribunals adjudication that the restrictive covenant is no longer enforceable, though this can be particularly time consuming and possible more expensive a procedure than insuring. Another alternative, if the beneficiary of the restrictive covenant is known, may be negotiating for the payment of a sum the removal of the restrictive covenant. Whenever a restrictive covenant is discovered, we would advise that you immediately speak to your legal advisors before approaching any parties, so as not to jeopardise the ability to insure against the risk. The approaching of potential beneficiaries to the restrictive covenant may well invalidate any insurance later obtained.
Other than title and planning restrictions are there any other practical issues I should consider before committing to purchase land and buildings for development purposes?
This is an extremely wide question, and we would advise that at a very early stage in any proposal, you liaise with your legal advisors to ascertain whether there are any aspects of potential development you may have overlooked. Frequently, there are issues overlooked by parties looking to develop.
One issue is rights of others and in particular rights that are not detailed within title deeds. Certain rights of neighbouring parties although not acquired by deed or formal grant can be acquired by long usage. It is not uncommon to see pieces of land, over which neighbouring properties have acquired rights (prescribed rights) by using such for a period of at least twenty years. These rights are sometimes discoverable by inspection, by identifying:
Gates, doors and openings in neighbouring properties, walkways, paths etc, that run across the development land in question.
Other rights that could prevent development relate to existing services. In many instances these are resolvable by the diversion of services, though may involve more costs than envisaged and much dialogue with utility providers such as gas, water and electricity.
In addition to perhaps considering what existing rights may hinder development, many overlook rights that the new development might require. Obvious rights required would be rights of access both pedestrian and vehicular. If the land is abutting a public highway then this might be straightforward. If the land is accessed via private road, or doesn’t entirely abut a private highway, then rights of access cannot be taken for granted and may need to be negotiated from third parties. It is essential not only to consider obvious accesses but also emergency accesses that may be required. In addition to access rights, thought should be given to the practical provision of other services and utilities such as gas, water, electricity, drainage, telecoms etc. It is necessary to carry out a full service search to ascertain where current services are and the ability to tie in. It is also important to consider the contours of land to ensure that the services can be provided, and without exceptional costs. Costs relating to the need to relocate things such as electricity sub-stations must be built in these can be very costly to move. It is also important to realise that effluent does not flow uphill, and if the nearest adopted sewer is uphill from the premises to be developed, pumping stations etc will be required.
In essence, there a number of legal and practical considerations to give thought to when considering developments, especially over and above the obvious ones of considering planning and title matters. We will be happy to consider and assist in any of these areas.
I propose to develop and sell five residential units, am I best disposing of them pursuant to the granting of Leases or the transfer of a Freehold interest?
This is an interesting question, and it may be thought that the easiest is to dispose of a freehold interest because agents suggest that a freehold disposal markets better, with more people wishing to acquire a freehold interest rather than leasehold.
That said there may be good reasons for the granting of a leasehold interest. The benefit of the granting of a leasehold interest is that you can guarantee a rental income by virtue of ground rents. The granting of Leases also gives you much more control over the estate, though one may think that for a small estate of merely five residential properties that you would not wish to retain too much control and would merely wish to dispose of the entirety of the site.
Decisions regarding whether leasehold or freehold is used for the disposal may also be dictated by such issues as common parts. If there are common parts which are to be used by each of the occupiers, then it may well be easier governed by the granting of leases, the common parts remaining in the ownership of the landlord who maintains them at the cost of the tenants, i.e. the tenants paying a service charge for the use and maintenance of communal areas such as car parking, forecourts etc.
There is the ability to dispose of premises by virtue of the relatively newly introduced common hold interest, though this has not been very popular to date, most developers continuing to dispose of premises by either a leasehold interest or the disposal of the freehold.
In addition to considering whether to dispose of properties by leasehold or freehold interests or indeed common hold, thought also needs to be given to the management structure, whether as developer you retain an interest in the common parts, or whether you form a management company in whom all the common parts will be vested, and pass ownership of the management company to the residential occupiers.
To determine whether to utilise a leasehold or freehold disposal, it is pertinent to give thought to marketability, whether you wish to continue to receive monies whether by virtue of a ground rent or a service charge payment, whether you wish to retain a greater degree of control over the estate.
All are factors to determine how to dispose of residential properties and we would be happy to guide you through the options available.
I have in the past developed residential properties and on their sales have produced to the purchasers an NHBC or Zurich Guarantee. I am now considering commercial development and enquire as to whether similar guarantees are available.
A commercial development is different to a residential development, in that standard guarantees are not regularly used. Pre-packaged guarantees for new build commercial properties to provide comfort to the purchasers, tenants or funders are virtually unheard of. Whereas in a residential development it is quite common to see an NHBC, Zurich, Premier guarantees and architect certificates, this is not the same in commercial development. It is very important that prior to commencing any development you give thought to the disposals and end users before proceeding. Whether you are to construct yourself or whether you are to appoint a construction/professional team, it most likely that the end users, purchasers, tenants or their funders will want to know that the works have been carried out in a good and workmanlike manner and that there will be guarantees that can be relied upon when such end users acquire the property for their own use or security. If you are not able to provide such guarantees and warranties in acceptable forms, then you may struggle to dispose of your development.
It is important to establish with a professional team at a very early stage, what guarantees they will be able to provide to your end users. Too many times we have seen a professional team appointed without thought as to the guarantees that they will give. In such circumstances when purchasers for instance have required some form of guarantee before handing over large sums of money for the development, the professional team have then gone extremely quiet and refused to provide warranties or guarantees. It is essential to establish at the very outset, those of the professional teams that are involved in both the design and construction of the new building, and ensure that they are properly appointed with appropriate construction documentation and deeds of appointment. All of which provide for their responsibilities throughout and after the building process, including the provision of warranties to the end user. Additionally it is crucial to establish that they have adequate insurance backing their guarantee. In some instances you may also want to give thought to the obtaining of bonds to secure the carrying out of works. There are many issues to give thought to when entering into a new development, especially if you are not to carry out the works yourself but are to instruct a construction team to carry out such works. Again these are issues to be considered at a very early stage and we would suggest that you speak with your legal team prior to commitment in all instances to seek preliminary advice.
I have found land that I would wish to acquire for development purposes, the vendor’s agent however has suggested that their client will require overage protection, how will this affect me?
Typically overage provisions are suggested by vendor’s agents to protect their vendor clients. They envisage land with its current use will have a value, but there will be potential in the near future to perhaps obtain planning permission for an enhanced use that would increase the value of that land. The overage provisions seek to ensure that the vendor of the land benefits from the uplift in value when planning permission is obtained. In most cases it is envisaged that the land will be purchased for its value at the day of completion, but that if planning permission is obtained later and the price is enhanced, that after deduction of the purchasers reasonable costs for the obtaining of planning and enhancing value, that a percentage is paid to the vendor. This seeks to fairly reward the vendor for allowing another party to enhance the value, and not enhance the value itself before disposing. If financially this is acceptable, then there will perhaps be no adverse affect to you as the acquiring party, you merely will be sharing the enhancement/profit of obtaining planning permission and increasing the use of value of the land.
There may be an adverse affect in that more work is required in the acquisition and disposal process, but also of concern is that many overage provisions seek to be protected by the imposition of legal charges on the title to ensure payment to the vendor. The knock on effect, is that this can hinder your own finance for acquisition, if a prior mortgage has to be declared and priorities put in place. There may also be adverse affect on disposals if the overage provisions pass to successors in title. It is important for overage provisions to pass to successors to prevent anti-avoidance. It is however important that there is provision for the release of the overage provisions when transactions are to take place following payment of overage uplift monies. The provision of overage can be a complicated area, though provided the provisions are drafted fairly and correctly, there should be little adverse affect to yourself. If drafted incorrectly, then they have been known to make properties unmarketable. It is important that good legal advice is sought whenever overage provisions are suggested to ensure a release so to enable the properties to be sold after payment of any uplift.
