Buying Land Overview: Start Here This Paper Gives a Brief Overview of the Implications

Buying Land Overview: Start Here
This paper gives a brief overview of the implications of buying land, outlining ways to finance the purchase, the buying process, what you get and the additional costs involved. It also outlines the responsibilities of the landowner in the buying land process.

Why buy?

If you buy the land for your group or project, the land and its use can be protected in perpetuity. When renting, your lease is only for a fixed period and you may have to leave the site at the end of this time.

Groups who buy land can feel that they belong to the land more than if they were renting it for a set period and it can also help foster a sense of community, as you have a shared asset that you are all responsible for.

With a lease, there are restrictions about what you can and can’t do and you have to get the landlord’s permission to do certain things. When you own the land you are only restricted by the law.

Many community groups run well on rented land. If your land agreement is long enough and you have permission to do everything you want to do, there may be little benefit in buying land. If your group is informal or temporary, it might not be suited to the responsibilities of buying land.

Who can buy land?

Quite simply, anyone with the money, but they need to have a “legal identity”. An unincorporated community group would have to name individuals, such as the group’s secretary and the chairperson, as the owner of the property. The property would belong to them and if they no longer wish to be involved with the group, the property would have to be transferred to new individuals. This is not a satisfactory or safe situation.

If you incorporate, then the organisation owns the land, not the individuals. Incorporation means your group could become a charitable incorporated organisation (CIO), company, a Community Interest Company (CIC), or an industrial and provident society (IPS).

The way you incorporate will affect how you operate and how you can raise money. Most grant funders specify which type of organisations they will fund and Industrial & Provident Societies can offer community shares. Further information about incorporation is available from the Plunkett Foundation www.plunkett.co.uk or from Co-ops UK www.uk.coop

What do you get?

When you buy land you get all the earth below your land. However certain minerals that you may come across when digging, such as gold or oil, belong to the Crown so are not yours.

You also own the airspace above your land, but aeroplanes and hot air balloons etc are allowed to fly over your land.

The seller may have reserved rights to your land, like the right to shoot (shooting rights), the mineral rights (gravel) or a right of access. This means that they can come onto your land and shoot, mine or drive to their house. But they would have to make good any damage caused to your property in exercising their rights.

When you buy land, it is very rare that you would be buying anything other than the freehold of the land. This means that all the land is yours forever. This is different from leasehold which would only be for a fixed period; running concurrently to the freehold. A leasehold can be a very long time (for example 99 years or 999 years) after which it will revert back to the freeholder. Leases can be bought and sold, but the amount of time remaining on the lease is critical and will impact the sale price.

Owning land does not give you permission to do what you like on it. You will be affected by planning permission, environmental legislation and so on.

Who sells land?

Land is normally sold by land agents or estate agents – look for commercial agents in cities. It will be marketed on their websites, but you could register your interest with them, giving details of approximate size, key features and location.

Quite often sites are sold without any marketing, as the seller may have reasons not to make the sale ‘public’. If you register your interest with agents, you may well get contacted about land that does not get advertised.

There are also benefits of approaching the landowner directly, as they may not have made a conscious decision to sell the land but your suggestion might plant the seed in their head to sell. Have a look at the Finding Land section on www.communitylandadvice.org.uk for more information.

Methods of buying land

A ‘normal’ land sale, where an offer is made and the sellerdecides whether to accept or not, is technically known as ‘”sale by private treaty’’. If there is a lot of interest, it may go to “best and final offers” or sealed bids.

Best and final offers are where all the potential purchasers have the chance to put in a final offer by a deadline. As soon as they come in to the agent, the vendor will find out what they are, and the agent will be able to tell potential purchasers what offers have been made. This method is akin to a slow auction.

With sealed bids, offers will not be looked at until after the deadline. The seller will then decide which one to proceed with. There is no obligation on the seller to go for the highest bid, as other bids may be able to proceed faster, if that is what they desire.

Buying land at auction?

Auctions require the buyer to pay a deposit (usually 10%) after the fall of the hammer (on the night). The exchange of contracts takes place at this time as well. This is legally binding, so all the searches, surveys and legal prep work are done in advance of the auction and are available to all potential purchasers to view beforehand. These are normally available from the auctioneer’s website.

Land being sold at auction can be bought before the auction, but you will still need to pay the deposit and complete quickly, as this is one of the main reasons people opt to sell their land through an auction. Accepting an offer before auction is entirely up to the seller and it will depend on whether they think the offer is better than one they are likely to get at auction. The seller will have a good idea of likely offer amounts, as the auctioneer will inform them how much interest there has been in the site from potential purchasers.

How much should we pay?

Put simply, land is always worth what someone will pay for it. So you need to consider who else would be interested in it and what they would do with it. It is very difficult to give guidance on a typical price per acre.

It is worth bearing in mind that good community growing land is likely to also make a good site for development or pony paddocks – in other words, the quality of the land will push the purchase price higher. However, you may find a landowner will be prepared to accept a lower price if you have the intention never to sell for development, as this may appeal to them, especially if they are retaining land nearby.

Cost of buying

To find out the sort of price you should be paying for the land, you can instruct a surveyor to produce a valuation report. Look for a member of the RICS and experienced in valuing land like your target, as it might be quite a unique type of property.

The surveyor will quote for the survey and valuation and talk you through what type of survey would be appropriate. They will also answer any queries that you might have once they have made their report to you. Get a number of solicitors to give you quotes before choosing.

As well as the price of the land, you will need to budget for one-off costs associated with buying land, including:

·  Solicitors’ fees

·  Valuation/survey cost

·  Stamp duty land tax

·  Searches

·  Land registry fee

·  Re-connection charges for water etc

·  Legal and arrangement costs of your finance, which would include mortgage fees or share issue.

You will need a solicitor to undertake the conveyance of the property (the procedure of buying land). The solicitors’ fees are usually based on a percentage of the property price (usually half a per cent) or will be a fixed fee. There may be additional costs which are known as disbursements.

The overall price will include the conveyance of the landholding and transferring the money, registering your title, completing the stamp duty land tax return and undertaking the searches such as the local authority search and the coal authority search. You should get a number of quotes for the transaction from different solicitors, but if your finance is from share issues, you will need to make sure your solicitor is experienced in dealing with this type of transaction and this may add an additional cost.

The Government has a calculator so that you can work out your Stamp Duty Land Tax liability. The threshold at which stamp duty becomes payable is currently (2013) £150,000. A 1% rate is levied on anything above this price up to £250,000.

To calculate your Land registry fee use the online calculator from the Land Registry.

Raising the money

It is difficult for a community group to raise money quickly enough to buy land. Most contributors will want to see the site and draw up plans for the site before they commit to providing money. In the meantime, another purchaser might come along. Getting your finances in place before you find a site can be done by building up the funder’s trust in you and your group and having a general business plan written that can quickly be adapted to a specific site.

You can:

·  Seek to make non-binding agreements with people about what they would be interested in supporting and on what terms.

·  Ask a sympathetic landlord to hold a site for you for a period; especially if you can show evidence that you are prepared and well supported.

·  Raise money to buy land from gifts and legacies, grants, loans and mortgages or shares. You may not be able to find grants for purchasing land, but they may be available for the associated costs like solicitor’s fees.

Loans and mortgages do have to be paid back of course, often with interest. You will need to convince the lender that you will be able to repay them, with their interest. A good business plan and sound track record will help. You can borrow from banks and building societies and some have ethical policies including Triodos and the Ecology Building Society. You can also borrow from individuals, such as people who live near the land, perhaps with low interest rates.

You will need professional advice to draw up a loan agreement. The agreement can specify that lenders will not be repaid for a specified period. You should be clear about the risks to the lenders investment – what happens if your enterprise fails? Some lenders ask for ‘security’ – something of equal value that will be theirs if you are unable to repay the loan. Some ask for a ‘guarantor’ – someone with enough money who will be required to pay what you owe if you fail to.

Some groups have bought land with share capital. Shareholders buy shares in the land. For technical reasons, this is usually done by groups incorporated as Industrial and Provident Societies who issue ‘withdraw-able shares’. These are only withdrawn with the consent of the group and so do not carry the same burden of repayment as a loan.

IPS shares can yield only limited financial benefit to shareholders. Industrial and Provident Societies are democratic and can give a strong sense of engagement and ownership. You will need advice to buy land with shares, see www.communityshares.org.uk.

For example, the purchase of Stroud Woods in Gloucestershire by the community was financed through share capital; click here for a link to a video about Stroud Woods .

Restrictive Covenants

Restrictive Covenants are limits on what you can do with the land you are buying in the future. They are put in place to protect the seller’s property (if they are retaining neighbouring land).

It is useful to check if the seller is going to apply any restrictive covenants to the land. There also might be restrictive covenants on the land put in by previous owners, and they may still be ‘live’ and the vendor should draw them to your attention – if not your solicitor should discover them in the searches. They will be on in the land registry title or in the deeds. An example of a restrictive covenant would be a prohibition on the erection of greenhouses on the land.

Restrictive covenants can be removed, but this normally involves a payment to the current beneficiary of the restrictive covenant. If there is no longer a beneficiary to the restrictive covenant, then it can be discharged (removed) however you will need a solicitor to do this.

Claw-back clauses

Sellers sometime include claw-back clauses, also known as overage – these are normally where the landlord gets to share in any dramatic increase in the value of the land. For example, a claw-back/overage clause could require the new owner to pay the old owner 50% of the uplift in the value of the land because it got sold for development. However any claw-back/overage clause should be reflected in the price paid for the site.