Selling a small plot of land

On current estimates, the United Kingdom needs over four million new homes to meet its housing needs. So, if you own a small plot of land which you no longer need or wish to maintain, now could be a good time to sell, especially if your plot has development potential.

‘The prospect of selling to a neighbour or family member may feel very different from selling to a developer, but it is important to consider all the implications and take legal advice early on,’ says Holly Stevens, Director & Head of Residential Property with Ware & Kay incorporating Pearsons & Ward Solicitors. ‘For example, if you sell land to a neighbour to extend their garden, think how you would feel if they later sold the land for development and made a substantial gain.’

You also need to think about how this could affect your enjoyment of your own home and the land you retain in the future.

Here she outlines some of the key considerations.

Mortgage

If your home is mortgaged, you will need your lender’s consent to any sale of land. Your solicitor will need to obtain their permission to release the land before any sale can proceed.

Access and other rights

Access will affect your plot’s suitability for development and your solicitor should check this, especially if you do not own the accessway. You cannot assume a right of access will automatically extend to a new use on part of your land. For example, a recent case found that a right over a private road which served a house and its garden did not extend to a new property the owner was planning to build. As a result, they had to abandon their development plans.

If you own access to the highway, then matters should be more straightforward. However, there are still a lot of issues to consider. For example, whether you wish to limit access; if you are selling land as a paddock, or for another amenity, you may only want to allow foot access or access for ancillary purposes. You may also need to decide who will construct the accessway and to what standard. It is also likely there will be ongoing maintenance costs. The documentation should cover responsibility for this, and you should discuss these issues with your solicitor. Positive obligations can be tricky to enforce. It is vital that someone who fully understands the issues drafts the documentation.

As well as access, you will need to consider whether the plot is likely to require rights over your retained land to run services and whether your retained land may need reciprocal rights. Even if this is not immediately the case, you should cater for future eventualities.

New boundaries

You will need to ensure that the plot you are selling is sufficiently defined. The plan will have to be clear and meet the Land Registry’s requirements.

If it is important for you to create or maintain certain boundary features, such as a fence, then discuss this with your solicitor. For example, you may be worried about privacy or not want your new neighbours to be able to build close to your boundary. There are various ways of protecting yourself, such as including an appropriately worded restriction, and your solicitor can advise you on this.

Restrictions and conditions

You should also consider the risk of disruption, particularly when selling a plot for development. You may have to accept some inconvenience, but there are ways to retain some control. For example, by requiring compliance with a particular planning permission, you should know what the completed development will look like.

Another way of protecting yourself might be to include a restriction. This could, for example, prevent your new neighbours from using the plot other than for a single residence. Talking through your concerns with your solicitor, ideally before marketing your plot, can help you identify what is important to you. You can then build in the necessary protection in any future deal.

Even if you are selling the land for amenity use only, for example, as a pony paddock or garden, you should consider what could happen in the future. You may trust your current neighbours to behave responsibly, but what about their successors? Similarly, your local authority’s planning policies may make development unlikely in the near future, but this too could change. For example, it may be important to you to maintain the rural nature of your setting, or you wish to ensure you are not disturbed by excessive traffic to the site. Whatever your concerns, discuss them with your solicitor who can then advise you on how best to protect yourself.

Development potential and valuation

Not all land is suitable for development, and development potential will depend on the viewpoint of the purchaser. A commercial developer may take a longer-term view than a small housebuilder who is looking for a project to commence soon. A neighbour with direct access to the plot will be in a more advantageous position than someone who may need to rely on you for access.

Land valuations can be complex, so it is important to use an agent experienced in plot sales.

Planning use

Planning use is important too. Your buyer will want to know there is permission for their intended use, or that they stand a good chance of getting permission in the future. Your solicitor should also check your title for any restrictions. For example, there may be a restrictive covenant against building or buildings of a certain type. Seeking specialist legal advice allows you to assess these types of issue, and doing so early on means you can resolve them. For example, in the case of a title restriction, this could be through negotiating a release or suitable insurance cover, without prejudicing your sale. In the case of planning, it may be possible to apply for retrospective consent or a certificate of lawful development if the existing use is unauthorised. If your seller wants to use the land for something new or to develop it, then that too will affect how you structure the transaction. One of your key decisions, and something you should take expert advice on, will be whether to obtain planning permission for a development yourself, before selling. Doing so has two main advantages. First, it gives you more control over what is built on your plot. Secondly, it will enhance its value.

On the flip side, this route will cost more and takes longer, and there is no guarantee you will be successful, although a planning expert can give you a good assessment of your chances.

Consider including an overage clause

Even if you do not go to the trouble of obtaining planning permission for development, you can secure the benefit of any future ‘planning gain’ in the land value, through the inclusion of an overage clause in your sale agreement. Even if you are selling your land as amenity land, without any realistic prospect of development in the short term, you may want to cater for this eventuality.

Basically, an overage provision (sometimes called a claw-back provision) works through comparing the value of the land when you sell it without planning permission, to the increased value of the land with the permission. You are then entitled to an agreed percentage of the uplift in value when a trigger event occurs. For example, this could be when planning permission is granted, work starts, or your buyer sells the plot on.

However, it is important to ensure the overage clause binds any future owners. Otherwise, you may not be able to rely on it if your buyer sells the plot on, as developers often do. Your solicitor can advise how best to do this, for example, by registering a restriction against the title.

Remember tax and other practicalities

Usually when you sell your home, you will not have to pay capital gains tax because of primary residence relief. However, if you are selling a plot of land, your tax position can be a lot more complex. While the primary residence relief will usually extend to a sale of part of your garden, there are circumstances in which you may lose this. So, always take specialist advice.

Involving your solicitor at an early stage will help you decide on the best structure, considering any tax implications. It will also mean all the legal formalities are addressed in a timely manner, which will reduce any causes of possible delay.

How we can help

For further information or an informal discussion, please contact Holly Stevens in the Residential Property Team on York 01904 716000, Wetherby 01937 583210 or Malton 01653 692247 or email holly.stevens@warekay.co.uk to see how we can assist.