07 Nov Property development in a Brexit world
As confusion over Brexit continues, we’re meeting many property developers and landowners who are concerned about what it could mean to the value of land and its development costs.
Development prices are generally valued in reverse – what will the development sell for? Less what it will cost to build, less the developer’s profit, with the remainder being what the developer is prepared to pay.
But how will the housing market react to a ‘no-deal’ scenario and what will materials cost? Some developers are reducing their offers to give more cost flexibility, but deals won’t happen if the landowner expects a higher price, possibly based on an earlier land valuation.
Steven Haynes, Senior Associate Solicitor, Commercial Property at HRJ Foreman Laws Solicitors sets out two ways to navigate the choppy waters.
Promotion Agreements – The landowner agrees to work with an experienced developer, or ‘promoter’, who will usually fund the cost of obtaining planning permission in return for a fee or profit share when the land is sold. For the landowner, planning value is created without the landowner having to pay for it, which is helpful in an uncertain market. The land can then be sold with the benefit of planning, generating a higher price for the owner and with the developer taking a profit for a relatively low investment.
Overage Agreements – The landowner might want to sell but believes market conditions will improve post-Brexit, so the solution might be to sell with the benefit of an ‘overage agreement’. This will typically say that if the developer is able to sell the developed land for more than the parties expect, then the developer will pay further sums to the landowner, normally calculated as a % of the sales price. In basic terms, if the developer makes a higher than expected profit, it’s acknowledged that the landowner, in selling at the lower price, then receives a proportion of those higher profits.
To make an appointment to discuss a promotion agreement or overage agreement with one of our Commercial Property Solicitors, email info@hrjforemanlaws.co.uk or call us 01462458711. https://www.hrjforemanlaws.co….