The precise answer to any development question will be influenced by many factors; in this article we are pulling together a selection of questions that we address on a regular basis, but please do get in touch if there's something specific you need to know.
FAQ#1 | Developing airspace
I’d like to develop the airspace above a residential block of flats. What should I think about?
This is not as simple as you expect. There are many things to consider, including:-
- Firstly, check that you actually own the airspace. Have you granted any leases of the same to, for example, the management company, or a phone company?
- Next, consider what the existing occupants of the building are entitled to, and examine the leases of the flats you have granted. You will need to think about:
- whether the tenants have any rights over the roof space, eg. rights of access, rights of maintenance of any air conditioning units or aerials.
- if any disposals of the airspace will be considered a "relevant disposal" under the Landlord and Tenant Act 1987; if the airspace is considered to fall within the definition of the common parts, then you will need to offer any disposals to the qualifying tenants.
- what do the plot leases say about quiet enjoyment?
- how is the service charge in the lease calculated?
- Do neighbouring landowners, or tenants have rights to receive light or air across the roof?
You would be wise to instruct solicitors to undertake a comprehensive review to assist you further.
FAQ#2 | Vacant possession
I’m looking at a residential property, currently let to a third party, to develop. Can I rely on the owner’s word that the tenant will be gone by completion?
You can ask your solicitor to include a provision in the sale documentation that vacant possession is given on completion. If the owner can’t then deliver vacant possession, you will have a breach of contract claim against them.
Best practice suggests that you also ask that the occupier signs the sale agreement confirming that they will leave on completion. Again, if the occupier refuses to leave, then you will have a contractual remedy against them.
As it can be difficult to obtain possession of residential property if a tenant refuses to leave, then you may wish to make the contract conditional on vacant possession being obtained; this way you won’t have to complete until vacant possession has been given.
FAQ#3 | Right of way
I am buying part of a landowner’s property that includes access to his retained land. I am granting a right of way over the access road; is it OK to provide an alternative whilst developing the site?
Without agreement, any interruption to the exercise of the rights of way may amount to a wrongful interference. You don’t say at what stage in the buying process you are at but assuming that you (i) haven’t completed the transfer document or (ii) exchanged an agreement with an agreed form of transfer attached, you should include a right for you to vary the right of way during your work’s period. If you have done either of the above without a right of variation, then you will need to speak to your solicitor about how to remedy this. The remedy itself will depend on where you are in the conveyancing process.
FAQ#4 | Possessory title
I am looking at buying a site with possessory title for development. Is this OK?
A possessory title is basically title acquired through long use. It is not 100% guaranteed by the Land Registry as it is not based upon legal title documents. As such, at any point before absolute title is granted, anyone with a better title to the land can overreach the possessory title. This makes a possessory title unacceptable to most plot buyers/lenders.
It is sometimes possible to secure insurance against the risk of a third party overreaching the title, but even the insurance is unacceptable to most plot buyers/lenders as there is a high risk of the plot buyer ending up with nothing other than a claim on an insurance policy.
We advise most developers that any possessory title land should only ever be used for non-essential common areas on a development, such as landscaping, common grounds etc; essentially anything that, if taken away, will not materially affect a plot buyer.
In this case, the whole of the site is possessory title which means that you will be taking a significant risk if you decide to proceed.
One solution is to require the owner to apply for title absolute and see what the Land Registry say. The owner can only apply to upgrade the title 12 years after the possessory title was registered.
If you are still keen to buy the site, depending on the date when the title can be upgraded, you could enter into an option agreement which expires after the title has been upgraded and gives you time to obtain planning permission.
FAQ #5 | Overage
The owner of the development site I’m buying has asked for an overage; should I consider it to seal the deal?
Overage is a mechanism whereby a seller can obtain a share in any uplift in value of land after they have sold a property (the overage payment). Overage requires the buyer to make an overage payment to the seller, if a trigger event happens.
Common examples of trigger events are the grant of planning permission, or when a developer exceeds a certain amount on their plot sales. Careful consideration needs to be given to what the trigger event is going to be, as this will be when the overage is potentially payable to the seller.
Do you want one?
Buyers and sellers will usually have very different aims when it comes to overage.
A buyer will want to make sure that any protection a seller puts on the title (to secure payment of the uplift) does not make it more difficult to sell the land, or the plots. They will want to ensure that the land is not tied up by an overage agreement for a long period of time.
A seller has lost their leverage once the land has been sold and so they will want to ensure that they will definitely receive their fair share in any future uplift (and how much that uplift should be) in the future value of the land.
In order to avoid problems later, detailed thought needs to be given at the heads of terms stage to:
- How the overage payment is to be calculated
- What is the trigger event going to be
- How long the land will be bound by the overage
- How the overage will be secured against the land?
- Does the overage bind successors in title?
Given the wildly differing stances of buyers and sellers, getting expert advice on overage at the outset is very important. Negotiations can be both lengthy and expensive, and there are potential tax implications on entering into an overage deed. In the long run, it may be better for buyers to increase the purchase price or to consider another form of agreement
For further information on this or your other points to consider when acquiring or selling a development site, please contact Isabel Alderton-Sell
FAQ #6 | Lockout agreements
The owner of a development site I want to buy has suggested a four-week lock-out; is it worth doing?
An exclusivity agreement (also known as a lock-out agreement) is where a seller agrees with a potential buyer not to negotiate with any third parties for a certain period the ‘lock-out’ or ‘exclusivity’. It doesn’t mean that a sale will take place, but it gives a buyer time to carry out searches and initial enquiries into a property without worrying that the seller will do a deal with someone else.
When negotiating a lock out agreement, you should keep the following points in mind:-
- How long should the agreement last?
- What do you want a seller to commit to do? For example:
- Cease all negotiations with other parties interested in the sale of the property.
- Stop all marketing of the property.
- Assist the buyer promptly with any enquiries that they have in relation to the property.
- Permit access the property to carry out any surveys, inspections and tests which they need to undertake.
- Pay your costs in they breach the agreement.
- To instruct solicitors and provide a sale pack by a certain date.
- What commitments will be placed on you, the buyer? Does the seller want to exchange contracts within the lock-out period?
- What arrangements will be made to bring the agreement to an end early, if you decide not to proceed?
Are lock-out agreements worth it?
- If you spend a lot of time negotiating the terms of the agreement itself, then probably not; you could be progressing the transaction itself in this time.
- If the seller breaches the agreement, what remedies does a buyer really have? Will you really want to spend more time and money to recover any costs incurred, and possibly damages?