Securing a site to build and sell houses on brings about a unique set of challenges. Although it is a cliché, the three most important property factors are location, location and location.
Finding the land in the first place
Location is even more important when choosing a site as the quicker you sell the plots on the better, and the speed of sale can mean the difference between good profits and going out of business.
When you are choosing a site, it is important that you try and anticipate every problem and deal with it before you buy the site. When you come to sell, solicitors are likely to raise the problem. You need to assume that your buyer will choose the most awkward and slowest solicitors in the country. You need to anticipate their every whim and pre-empt their questions. If your lawyer can produce a detailed pack about the property in which you have addressed every problem and found a solution, it will be tempting for the lawyer acting for your plot buyer to rely upon that. Hopefully, he/she will not be able to raise any additional questions as all problems will already have been covered.
Before you instruct your solicitor
Before you even start the legal process, you need to think about a whole range of issues. It may be that you get your lawyer involved if one of these is a potential problem. Many of these points will be considered by your solicitor in any event, but they are the sort of thing that can stop you buying the plot in the first place, so the sooner you think about them, the better.
Rights of way and access to the site
How will you get to and from the site? If it relies upon a right of way, you need to be sure that this will be sufficient to allow access to all the eventual owners of the plots. A right of way over a lane for one cottage will not automatically allow you to build 40 houses and use that right of way as the means of access for all the owners.
If the development is more than a few plots, you will certainly need to enter into some sort of road agreement with the Local Highways Authority. This will involve you satisfying them that the roads are built to a certain standard, so that they will eventually adopt them (i.e. take responsibility for them). This agreement will normally need to be backed by a bond - the bank will join in the agreement and guarantee that, should your company go into liquidation, it will pay for any necessary corrective works on the road.
Sewers and drainage
This will generally be dealt with in much the same way as the roads - you will need to make sure that the relevant water authority will take over the maintenance of the sewers after they have been constructed. At the time of construction, it is also worth bearing in mind the route of the sewers on the individual plots - this may require additional rights to be put in all the transfer deeds, to allow them to run under adjacent plots.
Having a development next to their property can frequently bring out the worst in people. You therefore need to be clear about where the boundaries are. If this is not clear, then meet the neighbours and try and agree where the boundaries are. It is worth doing this before you buy the land, as you want to make sure this sort of problem is sorted out by the seller, or that a reduction in the price is made to cover the cost of such negotiations.
This will be your responsibility. Remember when dealing with the council that decisions frequently have to go before committee, and that this can take time. You may find it advantageous to visit the committee meetings to see what goes on.
The land itself
You need to make sure the land is not on a flood plain (especially in view of the problems with this in recent years). You also need to make sure that the land is not contaminated. Trees can often be a problem on a new development - you will need to check which (if any) trees are affected by a tree preservation order. This information will be shown on your local authority search, but you may wish to check with the council at an early stage - this information could well affect the layout of the plots.
You will need to instruct a surveyor to come out and value the site and advise on any particular areas about which you are concerned. Make it clear to the surveyor that you are intending to develop the site, and the number of plots you are intending to build.
In order for you to sell the property on, you will need to be able to provide the buyer with some sort of security that it has been built properly. This will be in the form of a guarantee such as NHBC, Zurich, HAPM, or an architect's certificate. If it is the latter, the buyer's solicitor will often want to see details of the architect's insurance policy and be satisfied that it covers subsequent buyers. It is worth mentioning this to the architect at an early stage to make sure he or she doesn't charge any extra for having this level of cover.
Initially there will be little to insure on the land, but you will need to have insurance in place to ensure that all the properties are insured (for their rebuilding cost) up until the date they are sold.
The purchase itself
This follows the same steps as buying an individual property. Additional comments have been added to indicate important issues to consider because of the planned development.
Your solicitor will firstly contact the seller's solicitors and ask for an information pack about the property you are buying. This consists of:
- a copy of the title deeds
- a contract
- a property information form (and, if it is leasehold, an additional property information form)
- a fixtures, fittings and contents form.
It may take a while for the seller's solicitors to get hold of all this information. In addition, your solicitor will need to carry out local authority, water, and (if the property is in a mining area) mining searches. Searches are simply a list of questions about the property that are sent to the relevant authority.
As it is a piece of land, the seller will not normally provide a property information form (as it deals with issues raised as a result of living at a property, it is not really relevant anyway), or a fixtures, fittings and contents form. Instead, your solicitor should raise some enquiries with the seller's solicitors about the land. These enquiries will chiefly deal with the issues mentioned above (such as boundaries, rights of way). Your solicitor may wish to wait until he or she receives the contract and copy of the deeds before raising these enquiries.
The only other thing your solicitor will need before proceeding is a copy of your mortgage offer (if applicable). Once the firm has the contract, copy of the title deeds, property information form, fixtures, fittings and contents form, local authority search, water board search, mining search (if applicable), and mortgage offer (if applicable), you can move on to step three.
Some of the key things your solicitor will be looking out for on the title deeds are: restrictive covenants limiting the number of properties that can be built on the land, rights of way across the land, and checking the seller owns what they are trying to sell to you.
Your solicitor goes through all the above documents with you and explains any problems there may be with the property (this can either be done face to face or by a written report on the property). Once you are satisfied that there are no major problems then you can sign the contract and let your solicitor have a deposit (if you are selling as well, then this is generally not needed, as your solicitor can use the one they will receive on your sale). You are then ready to exchange contracts.
Before committing you to the purchase, it is a good idea (depending upon the size and complexity of the development) for your solicitor to visit the site to see if there are any particular issues that need to be dealt with. In addition, it is quite common for contracts to be exchanged conditionally upon receipt of satisfactory planning consent. This way, if the consent is refused, or if unreasonable conditions are imposed, then you can withdraw from the transaction even though contracts have been exchanged.
Once the buyer and the seller are ready, a completion date (the moving date) is agreed. Your solicitor will then exchange contracts (this simply means swapping the contract signed by the seller for one signed by the buyer - together with a deposit provided by the buyer). After contracts are exchanged, the contract is binding and neither party can withdraw without incurring massive expense (unless the exchange was conditional upon something, such as satisfactory planning consent).
On the completion date, your solicitor will hand over to the seller's solicitor the remainder of the purchase money and, in return, receive the transfer document and the title deeds.
Your solicitor must then, within 28 days, arrange for the payment of stamp duty (if appropriate) and, within two months of the completion date, apply to register the buyer's ownership at the Land Registry.
Before you come to sell the plots
There are a few things you need to consider. When laying out the development, you need to make sure that rights of way, drainage and so on are all covered in detail in the documentation. Frequently you will find that the Section 38 agreement (for roads) and the Section 104 agreement (sewers) are not completed by the time you come to sell. In those circumstances you may well have to accept a retention by the buyer's solicitors (for example, they hold back £500 in respect of the roads until the Section 38 agreement is executed by the council).
If you are trying for very quick sales of the plots, you may wish to consider taking the buyer's properties in part exchange. However, this obviously means that you then have another (usually cheaper) property to sell. You also need to be wary of buyers trying to part exchange properties with you because there is something wrong with their existing home that they hope you will not notice.
Selling the plots on
On each individual plot sale your solicitor will go through the same series of steps as on any other type of property sale. These steps are set out below. We have added some extra points that relate to plot sales in particular.
Your solicitor will firstly need to prepare an information pack about the property to provide to the buyer's solicitor. This consists of:
- a copy of the title deeds
- a contract
- a property information form (and, if it is leasehold, an additional property information form)
- a fixtures, fittings and contents form.
Generally speaking, your solicitor would prepare a standard information pack to be used for all the properties on the development. This would also include the transfer deed (normally, the buyer's solicitor draws this up), to make sure that the same rights were granted to every buyer on the site. Your solicitor will normally charge the buyer for drawing up this deed. Frequently, the transfer deed would place restrictions on the use of the property for a period after it is sold. For example, it may forbid buyers from having a caravan stored at the front of the property. This is to prevent the situation where you sell one plot, and the buyer then does something at the property that makes it harder for you to sell the remaining plots. These restrictions can include breeding animals and erecting satellites.
The first two items, the property information form, and the fixtures, fittings and contents form, are filled out by you, the seller. They are questions about the property that you should be able to answer quite easily. However, if you are unsure about any of the questions, then you should contact your solicitor. These would not normally be supplied on a plot sale, and the relevant information is included in the information pack instead.
If you have a mortgage, then the title deeds will be held by your bank or building society. If you do not have a mortgage, then you should know where the deeds are kept. Either way, your solicitor will obtain the deeds and let the buyer's solicitors have a copy. This is to prove to them that you own the property, and to show them any rights of way or other conditions that exist. As you are not selling all the property at once, you will need to be able to 'split' the deeds up. This is dealt with on completion (see below).
Once your solicitor has the title deeds, he or she can prepare the contract. This sets out the main terms of what has been agreed - your name, the buyer's names, a description of the property and the price. You will now have to wait until the buyer is ready to proceed.
Once the buyer and the seller are ready, a completion date (the moving date) is agreed. Your solicitor will then exchange contracts (this simply means swapping the contract signed by the seller for one signed by the buyer, together with a deposit provided by the buyer). After contracts are exchanged, the contract is binding and neither party can withdraw without incurring massive expense.
A common occurrence on plot sales is to have a conditional exchange of contracts. In addition, it is quite common to exchange contracts before the property has been finished. In such circumstances, you cannot have a fixed completion date, as it would be impossible to specify. Instead, the contract will contain a clause stating that completion will take place a number of days after the developer finishes building the property. Your solicitor would then exchange contracts and wait until you let him or her know the property is finished. He or she then serves a notice on the buyer's solicitors saying it is complete, and 10 days (or however long was stated in the contract) later he or she receives the money and the buyer receives the keys.
On the day of completion, your solicitor will receive the balance of the sale price, in return for which they will hand over the title deeds to the property. Your solicitor will use the money to repay the mortgage the seller had on the property and secondly to pay the costs of sale - the estate agent's account and your solicitor's own fees. If there is money left over, then this will be sent to you on the day of completion, unless you are using this money on an onward purchase.
On completion of the first sale, your solicitor will send your deeds in to the Land Registry for them to place upon deposit (this just means the Land Registry are waiting for people to buy parts of the land). On completion of the sale, your solicitor gives the buyer's solicitor the deposit number and when the Land Registry receives the buyer's application, they split that part of the deeds off and register them in the new buyer's name.
Having set out the general procedure for buying a house or flat, there are also a number of specific points worth noting. Set out below is a list of the main terms used in conveyancing. Some do not specifically relate to a purchase, but we have included them here for completeness.
These documents firstly act as evidence that the person selling the property actually owns it, and secondly set out any rights or obligations that affect the property.
If you are selling, then valuable time can be saved if your title deeds can be obtained by your solicitor at an early stage. If you have a mortgage, then your bank or other lender will be holding your title deeds. Your solicitor will need to know your mortgage account number and the name and address of the lender. Some lenders charge a fee to send out your deeds but this will normally be added to your mortgage account.
Property information form
This is a questionnaire filled out about the property by the seller. It covers such things as guarantees, neighbour disputes and boundaries. If you are buying, then time can be saved if you tell your solicitor at an early stage if there are any particular points about the property that concern you. He or she can then ask the seller's solicitor the relevant questions.
If you are selling and the buyer's solicitor asks a question to which you do not wish to give an answer, for whatever reason, it is essential that you discuss it with your solicitor. Failure to disclose certain information could give the buyer grounds for taking action against you. If the property is leasehold, then there will be an additional property information form filled out as well. This mainly deals with certain aspects of the lease, such as service charges, ground rent and so on.
Fixtures, fittings and contents form
This is a list of the items at the property which are being taken or left behind. It is completed at an early stage by the seller and sent out to the buyer, so that both parties understand what is included in the selling price.
If you are the seller, when you let your solicitor have the form, he or she will send you a copy straight back so you know what you have put on it. If you are the buyer, your solicitor sends you a copy of the form as soon as it is received from the seller's solicitors, so that any difficulties can be resolved at an early stage.
Local authority search
This is a list of questions about the property that are sent to the local authority. It covers such things as whether the road serving the property should be maintained by the council, whether there have been planning applications on the property and a number of other things.
The search is against the property only and does not cover the surrounding area. A word of warning: the search will not show any planning permissions or matters affecting land or buildings outside the boundaries of the property. It is important, therefore, for you to let your solicitor know at the start of a transaction if you want information on any particular point or if you wish him or her to ask any particular question of the local authority. Solicitors would not normally advise a buyer to exchange contracts without a satisfactory local authority search.
This is a report carried out by a surveyor on the physical state of the property you are buying. If you are buying a property, you should be aware that the property is 'sold as seen'.
It is for you, as the buyer, to discover any physical defects by means of inspections and surveys. Most houses are bought with the assistance of a mortgage and the bank or building society will require a mortgage valuation. However, this is not a survey - it merely ensures that the property is of sufficient value to protect the lender's interest.
The advice is that you should at least have an RICS Homebuyer's Report prepared by a qualified surveyor. This will cost more than a mortgage valuation but it is money well spent. It is possible to go one step further and have a full structural survey of the property. Initially, you should not choose this option unless the surveyor who carries out the Homebuyer's Report thinks any matter should be investigated further.
The deposit causes a lot of confusion. When most people talk about the deposit, they are talking about the part of the purchase price that the buyer is putting down him/herself (i.e. usually the difference between the amount of the mortgage and the purchase price). When solicitors talk about the deposit, they are talking about money that is handed over to the seller's solicitors upon exchange of contracts. This might be the same amount, but it may vary.
On exchange of contracts, the seller can insist on receiving a deposit representing 10 per cent of the purchase price from the buyer. However, as many people are not contributing as much as 10 per cent to the purchase, reduced deposits, are often agreed. You should be aware, however, that if you are a buyer and you pay a reduced deposit then fail to complete the purchase through no fault of the seller, you will, under the terms of the contract, be required to make up the deposit to a full 10 per cent. You may also have to pay compensation to the seller if the seller loses out through your failure to complete.
The loan is 'attached' to your title deeds, which means that you cannot sell the property without paying off the mortgage at the same time. Contracts should not be exchanged until an acceptable written offer of mortgage has been received.
In many cases, a mortgage will be supported by an endowment, pension or mortgage protection policy. In these circumstances, a solicitor must confirm to the lender before exchange of contracts that either there are existing policies, or arrangements have been made for new policies to be brought into effect as soon as contracts are exchanged.
If you are selling, your solicitor will contact your mortgage lender at an early stage to ask how much it will cost to pay off the mortgage - he or she will then send you a copy of this figure. You may find that you will be charged a financial penalty if you pay off the mortgage early. This is obviously a consideration to be taken into account when agreeing a completion date, and often applies when your existing mortgage was set up on a fixed rate, or if you obtained a cash back when it was set up.
This is the agreement between the buyer and the seller. It sets out the main terms of what has been agreed, such as the address, the price and the names of the parties. It also deals with what happens if something goes wrong. Rather than having to get the buyer and the seller together to sign the same contract, the seller's solicitor draws up two copies of the contract, and each party signs their own copy. When both parties are ready to commit themselves, these two contracts are literally exchanged.
From the minute that contracts are exchanged, the sale becomes binding. From that moment on, the seller must sell, the buyer must buy and this must all be done at the price set out in the contract.
Until contracts are exchanged, nothing is binding - either party can walk away from the transaction with no penalty. As contracts are exchanged, a deposit is handed over from the buyer's solicitors to the seller's solicitors. The balance of the money will be handed over on the completion date.
Conditional exchange of contracts
This is quite common on new properties. It means that although both parties are bound as in a normal exchange, it is conditional upon something being finished. It could be conditional upon the buyer receiving a mortgage offer, selling their own property, or receiving a local authority search. This would be done when the buyer hasn't yet received a mortgage offer, or sold their property, or received their local search. By making the contract conditional, it allows the developer to commit the buyer as early as possible, but also means the buyer is not taking a risk, as they can pull out if there is a problem with the item in question.
This is the date that ownership of the property passes from the seller to the buyer. The seller and buyer should discuss dates between themselves and then notify their respective solicitors, who will obviously try to fit in with the suggested date. If there are unforeseen delays, for example, if the buyer does not receive a search or mortgage offer in time or the cash buyer turns out to have a dependant sale, then the completion date may have to be revised. For this reason, you should not make any firm commitments such as giving notice on a job, arranging removals or making holiday bookings without first contacting your solicitor, so that he or she can advise you whether you are in a position to make such a commitment.
Only when contracts are exchanged and a completion date is fixed can you be virtually guaranteed that the completion date will be met. It is not essential for you to be present on the completion date. However, if you are going to be away then you should let your solicitor know so that he or she can arrange for one of your relatives (or him or herself) to act for you through a power of attorney.
Land Registry is a central body where a record of who owns what land, and under what conditions, is kept. Set up in 1925, the Land Registry still doesn't have records of all the land in England and Wales. This is partly because it can only insist on the land being registered with it when it is sold, and partly because it is such a huge task. The Land Registry has its own website and provides some useful information.
What is stamp duty land tax?
Stamp duty land tax was introduced on 1 December 2003 and replaced stamp duty in respect of land transactions. Stamp duty was an old tax which required the existence of a document, such as a conveyance. SDLT is a very different type of tax and the new regime is intended to be robust. SDLT is payable by the purchaser in a land transaction. Further details can be found on HM Revenue & Customs website.
This is the document that passes the ownership of the property from the seller to the buyer. It is dated with the completion date, and will be sent to the Land Registry after completion. The Land Registry needs this deed to change its records and show the buyer as the new owner of the property.
Water board search
This is a list of questions about the property, which is sent to the relevant water board. It covers such things as whether the property is connected to mains drains, the location of the nearest main sewer, and whether the drains have to pass over other property to get there. Your solicitor would not normally advise a buyer to exchange contracts without a satisfactory water board search.
Where applicable, this is simply a list of questions about the property sent to the Coal Authority. It is only required if the property is in a mining area, such as Nottinghamshire. This will reveal the date of the last mining, whether there any plans to mine there in the future, and whether or not there have been any subsidence claims made against the Coal Authority in respect of damage caused to the property by coal mining.
Some information contained herein may have changed since it was first published. PrimeLocation strongly advises you to seek current legal and/or financial advise from a qualified professional.