Shop around for best development deal

6 March 1998

Shop around for best development deal

NOW is a good time for farmers to consider development opportunities – but beware the pitfalls of options, warn agents.

Developers are still busy in the rural market, despite the governments recent shift in emphasis from greenfield to previously developed or brownfield sites.

Under an option, the farmer gets a payment from a developer, who pursues planning permission and can buy the ground (typically at a discounted price) if it is granted.

"It means the farmers dont have to lay out big sums of money on seeking consent, only to see the project fall flat on its face," says Cluttons Daniel Smiths Harry St John. "Farmers are not in the business of taking that risk; developers are.

"But dont grab the first offer that comes to the door. Theres a lot of competition for land out there."

Agricultural ground in the south of England that is worth, say, £2000/acre, can make between £400,000 and £600,000/acre if it has building consent, says Mr St John.

"Land buyers continue to knock on doors," says Strutt & Parkers James Bainbridge. But options are more complicated than they may seem. "If you get the right developer and the right buyer, there is very little downside. But the devil is often in the detail."

A recent case involved an offer of £30,000 up-front for a 15-year option on a 30-acre plot, with a purchase price of 80% of open market value. The eventual deal involved a sum of £165,000 for a seven-year option, with an 87.5% sum.

Deferrement clauses should also be included, allowing the deal to be postponed if tax rate rises above a certain level – say 50% – in the hope a more favourable regime returns, says Mr Bainbridge.

Speculation, meanwhile, remains as to whether the Mar 17 budget will bring measures – such as a windfall tax on farmland – to boost brownfield projects to the target 60% of the total.

Alan Irvine of Brown and Co says options will be increasingly seen, as getting the go-ahead for projects in the countryside becomes more difficult. "Developers will get more nervous of investing in outright purchases.

"For smaller-scale ventures, on a shorter scale, its often better for the farmer to get planning permission then sell the site," says Mr Irvine. "The longer term and bigger the project, the more sense it makes to enter an option." &#42

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