Whether you have a large garden, own commercial premises or have strategic land on the edge of town, there will come a time when you will want to know how much your land is worth and how you can sell it to maximise its value.
Whatever the size of your land, you will want the best possible deal.
When it comes to value, the best returns are typically achieved by obtaining planning permission to develop land. However, realising the value must be weighed against the investment, risk and timescale needed to achieve planning permission.
There are several ways you can approach selling a piece of land. Below we consider each in turn.
1. Unconditional Sale
This is the quickest way to release capital, but it’s also the option that will result in the lowest value.
Some “hope value” may be included in the price if the buyer is confident that they can secure planning permission in the future. Overage payments can also be offered to the landowner that capture some of the increase in the land’s value should planning be granted.
However, there are numerous risks and unknowns in obtaining planning permission, such as the quantity of development that would be permitted, the financial obligations that the council will impose and the interpretation of planning policies by individual planning officers and committees.
These risks are considered by potential buyers when they make an offer. The price they are prepared to pay unconditionally is somewhere between the existing value of the site and what it will be worth with a planning permission.
2. ‘Subject to Planning’ Sale
To reduce these risks land can be purchased at an agreed price once a satisfactory planning permission has been granted.
As there is a reduction in the financial risk to the buyer, it increases what they are prepared to pay for the land, and the sale price will likely be higher than that in an unconditional deal.
However, the planning process can be time consuming and it may be some time before permission is granted and a sale completed, if at all. The uncertainties involved in securing a planning permission also still remain, and a buyer will expect the sale contract to allow them to walk away from the purchase if the planning permission is unsatisfactory or different to what they expected when they made their offer.
3. Sell with Planning Permission
Obtaining your own planning permission removes much of the planning risk for developers and will return the highest capital receipt.
The best way of doing this is usually to secure an outline planning permission, which approves the principle of development on a site, but allows some detailed matters to be decided in the future. This provides planning certainty for developers yet leaves flexibility for them to impose their own stamp on a site, such as the design and mix of homes.
However, applying for a planning permission can be a very expensive and complicated process. Costs can run into hundreds of thousands of pounds and will depend on the size and complexity of the site. These factors need to be considered against the potential difference in value and personal circumstances.
4. Promotion Agreement
Under a Promotion Agreement a developer, or land promoter, will work to obtain a planning permission on behalf of the land owner. The land promoter covers the planning costs and provides their expertise entirely at their own risk, in return for receiving a share of the sale proceeds when the land is sold with planning permission.
Here the objective of the landowner and developer is the same – to maximise the value of the land. As a consequence, even after the land promoter takes their share, the landowner often ends up with more money than if the site was sold earlier in the planning process as described above.
This is a win/win scenario for landowners, as they get to maximise the value of their land without the cost, risk and aggravation of applying for planning permission.
Ultimately, the value of any piece of land will significantly increase once planning permission has been obtained. However, in most of the cases that we encounter, landowners are unaware of the costs and timescales required to obtain planning for development.
The route you take to sell your site will depend on your own circumstances. Everyone will find a balance between the speed of sale and the price a site sells for, and everyone will have a different view on how much they want to get involved in the planning process and much they are prepared to risk.
LW Developments is a specialist land promotion company, with over 40 years’ experience in obtaining planning permissions that maximise land value for landowners. If you know of a site that would benefit from our involvement, or just want to understand what potential your site has, please get in touch for a free, no obligation assessment.
Dean Williamson MRICS
dean@lwdevelopments.com