Our commercial property solicitors can provide comprehensive legal advice on commercial land development, handling everything from conveyancing and disputes to all the paperwork and legal advice you’ll need during the sale and purchase process. Find out the basics with our commercial land development FAQs.
Jump to:
- Selling land for development: some considerations
- What is an option agreement? What clauses, terms and conditions should it contain?
- What is an overage clause in land development?
- What is a section 106 agreement?
- When dealing with land development, what are service agreements for utilities service providers?
- When dealing with land development, what are service agreements for utilities service providers?
- Can you buy Government land for development?
- What is a Landowner’s Development Agreement?
- What is a conditional sale contract?
- What finance will you need?
- Who can you sell your commercial property land to?
- What happens if you need access to develop your land?
- Do you need to enter a non-disclosure agreement (NDA) for land development?
- How long does it take to get planning permission for commercial land development?
Selling land for development: some considerations
If you’re selling land for development or potential development, you need to be aware that the buyer will wish to obtain planning permission to develop the land. If granted, the planning permission will considerably increase the value of the land to the buyer. When dealing with the sale agreement, as a seller you’ll want to make sure you’re entitled to some of the increased value that will allow the buyer to make a huge profit from the land after they’ve obtained planning permission.
What is an option agreement? What clauses, terms and conditions should it contain?
An option agreement allows the buyer the option to buy land from a seller for a limited period of time. When the parties enter into the agreement, often an agreed payment is made to the seller by the buyer in exchange for binding the land with an option agreement for a limited period. In this limited period, you, as the buyer, can apply for planning permission for that land (including any adjoining land if forming part of a larger development). If planning permission is granted, you can exercise your option to buy the land. However, if planning permission is denied, you can allow the option to lapse.
This is a useful agreement if the aim of your purchase is to:
- develop the land once planning permission is obtained (which is essential)
- avoid becoming the owner of land which can’t be developed the way you planned (which wastes money on land which can’t be made profitable)
When entering an option agreement, you should make sure you include the price which the buyer must pay to have the option, the time period for which the option is exercisable, and terms such as the price of the land, and the payment of professional fees. To protect your interest as buyer the option agreement should be registered on the seller’s title of the property.
Some issues you should consider before entering into negotiations with a seller:
- Making sure that the scheme only goes ahead if a minimum land take or a minimum value is achieved;
- A timetable of the obligations so that both parties are clear what is expected and by when;
- Ability to assign within your own group of companies or to a new and separate third party if required.
An alternative option would be to enter into a conditional sale contract
What is an overage clause in land development?
Overage clauses and provisions are included in an agreement for the sale of land, entitling the seller to receive additional payment if the buyer successfully obtains planning permission, or successfully develops the land.
The purpose of this clause is to allow the seller to benefit from the increased value of the land. Although the seller no longer has an interest in the land after the sale, the potential to exploit the land themselves, by not selling, gives a seller the bargaining position to include an overage clause in a sale agreement.
What is a section 106 agreement?
Planning obligations (also known as Section 106 agreements - based on that section of the Town & Country Planning Act 1990) are private agreements made between local authorities and developers which can be attached to a planning permission to make acceptable development which would otherwise be unacceptable in planning terms and reduce the impact on the community. The land itself (rather than the person or organisation that develops the land) is bound by a Section 106 Agreement and is something any future owners will need to take into account.
When entering into a section 106 agreement, you will need to make a financial contribution to the community, even before the development begins. For example, if you buy land to develop into a building of flats, and the area has limited school places, you may need to make a contribution to the local school.
A section 106 agreement is used for three purposes:
- Prescribe the nature of development (for example, requiring a given portion of housing is affordable)
- Compensate for loss or damage created by a development (for example, loss of open space)
- Mitigate a development’s impact (for example, through increased public transport provision)
Our commercial property solicitors can help you with negotiating a section 106 agreement and with all other elements of land development.
When dealing with land development, what are service agreements for utilities service providers?
Service agreements are the terms and conditions which regulate the arrangement under which the utilities service provider provides services.
In addition to terms concerning the price of the service and the dates of regular payment (for continued service), the terms of the agreement will depend on what service is being provided. For example, the agreement may be in relation to electricity, natural gas, water, sewage, telephone or broadband internet service.
Our commercial property solicitors can help you with negotiating a section 106 agreement and with all other elements of land development.
When dealing with land development, what are service agreements for utilities service providers?
An easement is a right granted over another landowner’s land. There are different types of easements which may be granted. For example, you may be granted a right of way, a right to light or a right of support.
One thing to note is that personal easements, such as easements granted to a specific individual such as a neighbour, will cease when that person dies.
However, you can also release (or terminate) an easement, by entering a deed. This will also extinguish the easement right over the servient land.
Can you buy Government land for development?
Yes, you can buy Government land for development. However, before buying the land, it’s recommended that you apply for planning permission in advance, to ensure you’re able to develop the land. This will prevent you spending money on purchasing land which can’t be developed.
What is a Landowner’s Development Agreement?
A Development Agreement is a term which is used to cover a variety of agreements amongst developers, landowners, purchasers, tenants and funders. Each agreement will be tailored to the parties and the circumstances of the particular development, but they tend to have a number of elements in common.
A ‘stand alone’ development agreement is an agreement between the owner of the land to be developed and the land developer. The agreement will specify the developer’s obligation to develop the land in accordance with the plans. Usually upon completion, you then sell the land, and pay the developer a fee which is a proportion of the development value for which the land was subsequently sold for.
If you enter a development agreement, it’s essential to get legal advice. To protect yourself from liability and costs from a defective development project, you’ll need extensive warranties and indemnities from the developer. You’ll also need a clause which allows you to terminate the agreement if there is a material breach of the agreement by the developer. Since consequences of termination can be complicated, it’s important to get a solicitor’s advice when drafting such clauses and agreements.
What is a conditional sale contract?
In the context of commercial property for land development projects, a conditional sale contract is a contract to sell land to a buyer on the condition that the buyer will apply or successfully obtain planning permission for the land. If the buyer fails to apply or obtain permission, the sale of the land will not be completed. Alternatively, if the buyer satisfies the condition by applying for planning permission and subsequently obtains planning permission, the parties can proceed to completion of the contract for the land.
It’s important to get specialist legal advice when entering a conditional sale contract. There are a number of factors you need to include in the drafting of the clause. The condition needs to be detailed and specific. This includes:
- What is the condition?
- Who has to satisfy the condition?
- How long does the party have to satisfy the condition?
- Who will decide whether the condition has been met?
- Will the parties share the cost arising from the party satisfying the condition?
An alternative option would be to enter into an option agreement.
What finance will you need?
If you plan to develop commercial property land, you’re likely to need finance to fund the process of obtaining planning permission, making the financial contribution under a section 106 agreement, and for the actual development (which will include the cost of materials, equipment, employees/sub-contractors, and general construction).
If you don’t have readily available cash, you have a number of different options when financing your development. You may:
- Use equity finance by issuing new shares in your company (if it’s a private limited company)
- Obtain a loan
- Issue loan notes
- Enter a joint venture with a party which is willing to make a financial contribution
- Enter a partnership (limited liability partnership) with a party or individual willing to make a financial contribution
Who can you sell your commercial property land to?
You can sell your freehold land to anyone. The buyer may therefore be an individual, a joint venture, a partnership, or a company (which may or may not be a development company).
Regardless of who you sell to, it’s important to get a solicitor’s advice with the process of sale. Although the conveyance will be the same in that it will involve a TR1, it’s also in your interest to include special provisions like overage provisions in your contract for sale of land.
Moreover, a transaction involving development of the land will also mean that the buyer will want the benefit of an option agreement or a conditional sale contract.
What happens if you need access to develop your land?
If you need access across the neighbours’ land in order to develop your own land, if not already provided for in your title, you’ll need to negotiate a licence, or an easement with your neighbour.
The former is more appropriate for short-term access. However, if the access is required for a longer period – three years or for the foreseeable future – it’s more appropriate to enter into a deed of easement. For example, if you’re developing a hotel and customers will require access across the neighbouring land to access the hotel, it’s better to obtain an easement by entering a deed.
Whether you choose to enter a licence or an easement, you’ll need to pay a fee to the neighbouring landowner for the access and for the cost of arranging these agreements.
Do you need to enter a non-disclosure agreement (NDA) for land development?
Possibly, if you’re a developer. An NDA is a unilateral or one-way agreement, in which one party undertakes to keep the other's information confidential. It’s recommended that developers enter into an NDA because this protects development plans being revealed to competitors who might try to buy the land you wish to purchase and develop.
In addition to preventing the land being sold to a competitor, entering an NDA allows you to keep your development plans confidential until the development commences.
How long does it take to get planning permission for commercial land development?
Once an application for planning has been submitted and accepted by the local authority, it can take up to six to eight weeks to get planning permission. Planning permission is granted on the date stated on the decision notice. If you do not receive a response within eight weeks, you can appeal to the Planning Appeals Commission within six months. (Please note this response relates only to land in England)
