Buying land for development – Don’t be held to ransom
If you are going to stand a chance at being successful in a development project then you need to be happy that there are no hidden costs that could strip out all of the profit. One of the hidden costs that could crop up, particularly if you have not done sufficient homework, is the cost of paying someone a ransom.
Of course, we aren’t talking the kidnapping of members of your family, but this is a common issue with land purchases. Let me explain…
There are many issues that need to be considered but, whether you are looking to buy a plot to build your grand design house or acres of land to build commercial units, there are two key principles that your solicitor will need to determine:
Firstly, whether or not you can legally access your site from the public highway, and secondly, whether you can lay and run the cables and pipes that will connect your plot to the mains utilities. After all, what good is that piece of land if all you can do is admire it from the nearest main road? Or if you can’t sit inside your grand design new home and watch Netflix because you have no electricity and fibre optic broadband?
The point here is that if between your site boundary and the public highway there is some third party land then you may face a bit of trouble, and potentially, be held to ransom.
How do we deal with this?
This issue should have been discovered at an early stage in the buying process, thus you should not have yet committed too much expense to the project. It is a relatively straight forward search undertaken using the highways register to check whether or not this is likely to be an issue.
Assuming there is some third party land between your site and the public highway, the solicitor will then trawl through the deeds to check if you have the required rights to obtain access. If you do, and they are clear, then hopefully the problem is solved.
Sometimes, however, the rights are not clear, or they appear to be clear but on further investigation are not fit for purpose.
If it is not clear (which experience tells me is often the case) then we need to consider your options. A few of the main ways of dealing with this are as follows:
- Proceed anyway and take the risk – Very rarely advised by us legal folk! Additional problems can also occur if you need funding to complete the project as lenders do not take such a cavalier view
- Obtain indemnity insurance – Sometimes this is an option but it’s not always the most attractive. You would then be relying on your lender or future owners and their solicitors being content with an insurance policy for a crucial element of the project. Some will be, some won’t. This could therefore limit your options in the future
- Locate the owner – This is likely to be the most expensive option in the short term but you will end up with a plot that has all the required rights and thus be attractive to any investors and buyers. You would “buy” the rights you need and the owner would release the land, thus you have paid the ransom.
Although we may well propose that option three is the best route, it may well be that the cost of this makes the entire development commercially unviable. You need to be cautious as the owner may well have kept the land for a reason. That reason may have been simply to profit in the future, or it could be to prevent any development taking place on the land you are looking to purchase. If it’s the latter then you would find it difficult come to an agreement at any price.
At this point you would have also lost your other options. Insurance companies would no longer risk insuring you after you had tipped off the owner. There is little point in flogging a dead horse and it may well be time to move on to the next project- before you have incurred too much time and money.
In summary, do your research and obtain professional legal advice before any land purchase. It is very tempting when you have found some land to proceed full steam ahead, particularly if on the surface it seems like a very good deal. With all of the potential costly pitfalls it pays to take a bit of time to explore the legal aspects in a bit more detail. It could save you thousands in the long run.