Leasing for development

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    Leasing for development

    Hello, I'm new to this forum, and hope someone may be able to advise based on their experience of developing land.

    I own the freehold of some land which has been earmarked for development in the local plan, it has a current non-residential use, and part could be developed as flats while retaining the existing use.

    I would not be in a position to develop it myself, and do not want to sell the land as it has been in the family for many years. Would a developer likely to be interested in building leasehold flats on the site, what would be th e benefits for him, other than not having to purchase the land? What would be the benefits for me, other than collection of ground rent, and a fee for the grant of the lease? In the case of the latter, how is this sum usually calculated?

    #2
    Depends on location - if in London it might be a goer.

    The cost of fees + the build would put developers at a loss with return only quickly if the flats were sold. Ground rent depends on area but is not normally that substantial in the case of flats.

    Have you thought about getting a Housing Association interested? They will find it easier to get consent but I think they would want to own the site. What use is the land zone for?



    Freedom at the point of zero............

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      #3
      A way forward would be to enter into a development agreement with a property company for them to gain planning permission and build new flats and commercial units. You to remain a party to all new leases as freeholder thus receiving future ground rents. I presume you would also share in the developed value by way of receiving some of the sale costs of the new units.
      We owned a leasehold property that included the city council (as freeholder), the builder and a management company in the lease with the leaseholder, so obviously can be done.

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        #4
        Thanks both for your advice. I hadn't thought of a housing association, it might be an option. The site is in the South West, the existing use is a small boatyard.

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          #5
          do not want to sell the land as it has been in the family for many years.
          When someone leases land that is effectively selling it, so the opening part of this posting suggests that the land-owner fails to realise what happens once a lease is signed.
          The Lessee gets to treat the land as owner for the duration of a lease term.
          If buildings are constructed on leasehold land then each building is sold under a separate leasehold title, although there is then a premium paid to acquire the property lease and a possibility of ground rent being received for the duration of the lease term.

          If the poster wants to retain the freehold reversion, so that in theory the land will return to his beneficiaries some time in the future, why is that any use to any of the immediate family?

          Any lease for less than 99 years will not be saleable if it is intended that a developer spend money on building the properties on the leased land and then makes his profit by selling each on the open market with a leasehold title.

          It would be a more sensible idea is to enter into a joint development scheme with an established building company.

          The land has a value that is the poster's part of the joint development venture.
          The Developer pays the cost of building the properties after gaining the necessary planning permission.

          When all the properties are sold, each party takes out their respective values and then share equally in the remaining profits of the scheme.

          e.g. Land Value £200K. Build Costs £400K

          Properties sell for £900K

          Land owner receives £200 + 150K profit = 75% return on investment
          Developer receives £400K + 150K profit = 37.5% return on investment

          Obviously a developer would prefer to buy the land at £200K and then have all the propfit from his development of the land, but there are some companies that will still think that a 37.5 % return on their capital is worth pursuing.
          Most land-owners will be delighted with a return of 75% more than the land was worth before the scheme was implemented, even if the land had been in the family for a long time.

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            #6
            Originally posted by pilman View Post
            When someone leases land that is effectively selling it, so the opening part of this posting suggests that the land-owner fails to realise what happens once a lease is signed. .
            My point was that it would be possible to retain the existing use of the land, develop part of it as flats, and retain the freehold of the site. This will have the dual benefit of retaining the use of the land for the immediate family, and to beneficiaries in the future.

            I haven't ruled out a part sale of the site, sufficient to develop, and it does seem that a joint venture may be a way forward as you have indicated - thanks for the advice.

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              #7
              Lolking at a joint venture strictly from the developer's point of view, it would be fairer to that developer if he also added his time spent supervising the building operations as the project manager, which is a job that needs to be done to ensure the buildings are erected correctly.

              On that possible scenario the land valued at £200K would be the land-owner's commitment, but the actual building costs would increase by say £100K for a year's work by the Developer in supervising and co-ordinating all the tradesmen.
              Then the profit will be £200k to be shared equally by the two parties involved in the scheme.

              That would result in the land-owner gaining a 50% increase in the true value of the land, even though he had no responsibility for having the buildings erected on it, nor did he need to invest any capital sum during the process.

              Still a good deal in my estimation, speaking as a retired planning consultant and property developer, who would have most definitely wanted to buy the land for £200K outright.

              Nowadays with an acute shortage of land available for development, this type of joint venture may well have more appeal to a developer who employs a permanent staff if land is not available otherwise. Better to retain employees earning some profit than none, always would be the pragmatic way to look at such proposals.

              For a land-owner who can afford to wait for the final payment that will provide the true enhanced value of the land there is a certain amount of risk, but not too much as long as the income from sales is carefully controlled through a carefull detailed joint venture partnership.

              A few extra pounds in legal fees to set up such a partnership will still be worthwhile because of the added value to the land such a scheme will provide.

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