Hedge your bets with a conditional contract when selling farmland for development

As the national housing shortage continues, particularly in rural areas, development land is very much in demand.  You may even have been approached by a developer or promoter who is interested in your land.

Property sales are never risk-free, with buyers able to pull out of a deal sometimes for the most incongruous of reasons. Many farmers negotiate a conditional contract to sell their development land which, as Andrew Little, agricultural law specialist at Ware & Kay Solicitors in York & Wetherby explains, provides some certainty for the seller that the land will be bought.

A conditional contract is a contract between a landowner and a developer which will only be completed if the condition or conditions stated in the agreement happen. If the conditions are fulfilled, the developer is legally obliged to buy the land. A common condition of such a contract is that the land sale will only go through if planning permission is granted for the site.

Conditional contracts can either be entered into for a fixed price or the purchase price can be determined once planning consent has been granted (and any other conditions in the contract fulfilled).

Selling the land for a fixed price can benefit both buyer and seller as the sale will go ahead for the specified price and neither will be caught up in costly valuation disputes if the price of the land rises or falls sharply before the contract can be completed.

However, as the seller, you need to be happy to receive this sum regardless of whether planning permission is granted or how long it takes for the conditions in the contract to be met. One way round this is to agree a fixed price, but to stipulate that this should be revised in line with either the retail price index or the house price index, so the sum is basically worth the same amount when the contract completes.

Alternatively, you can agree that the purchase price is to be decided once planning consent has been granted (and any other conditions fulfilled). In this scenario, the contract will usually stipulate that you and the developer agree a price, or refer the matter to an expert who will have the power to set the price if no agreement can be reached. You would then be required to sell the property for the price that the expert sets.

A conditional contract will usually be for a specified amount of time (the conditional period) which aims to give the developer time to obtain planning permission or pursue a planning appeal if their application fails. The agreed conditional period can often be extended if there is a pending planning application or appeal. This ensures the developer is not out of time under the contract just because of delays in the planning process, which is not something they can control.

To avoid the contract running indefinitely, it is advisable to include a ‘long stop’ date in the contract: a date the contract will categorically end unless the conditions have been satisfied. To avoid you being out of pocket if the contract comes to an end without the sale completing, you should ensure the developer pays you a deposit at the outset which will sufficiently compensate you for the time the property is tied into the contract.

Other express terms that might form part of the conditional contract include a pledge on your behalf to do whatever is needed to support the planning application, and your agreement to allow the developer access to the land to conduct any surveys and investigations that may be needed.

For further information contact Andrew Little, in the agricultural law team at Ware & Kay Solicitors on York 01904 716000, Wetherby 01937 583210 or Malton 01653 692247 or andrew.little@warekay.co.uk.