Financial & Legal News

INSIGHT: Don’t (Land) Bank on a Positive Return

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Tangible assets like land are often seen as a safe investment and a prime piece of development land can offer excellent returns whether you develop it yourself or sell it on.

However, it’s not always easy to distinguish a genuine land banking scheme investment opportunity from a costly land banking scam. Karen Piontek, associate lawyer in Pearson’s commercial property team, explains.

Land banking is the practice of buying undeveloped land with the intention of dividing it into smaller plots for re-sale at inflated prices. Often the investors that are encouraged to buy these plots are convinced by claims that the land’s future value will increase considerably once planning permission has been secured.

Unfortunately, many investors find out too late how costly it can be to snap up land that looks like a bargain only to find that it cannot be developed and is, therefore, worth a fraction of what they actually paid.

Indeed, the problem of scam land banking investment schemes has become so significant that the Land Registry has recently published a guide to land banking, outlining the pitfalls and the regulatory protection that may apply if you fall foul of a dishonest scheme.

Much of the problem for would-be investors is that the onus is on the buyer to be aware of a scam. This is because the Land Registry is obliged to register sales of plots within land banking schemes if all the necessary legal formalities have been met for the sale, even if it suspects that the seller has been operating an illegal collective investment scheme or is misrepresenting the land’s value.

Land banking per se is not regulated, so any money invested is unprotected if it later transpires that you may have been a victim of a scam or false claims. 

However, a land banking scheme that can be categorised as a ‘collective investment scheme’ is a regulated activity under the Financial Services Act 2012, so if the land banking company has confirmed to investors that they will deal with planning permission for the site – even if any literature they have produced says they will not – they could still be subject to investigation by the Financial Conduct Authority.

The bottom line is that a deal to buy development land that comes with big claims but no actual planning permission may not deliver a valuable return. What’s more, once you have committed to buying, you may not be able to salvage your mistake if things go wrong.

It pays to take legal advice whilst negotiating and before you invest. Without this due diligence, a promising development opportunity could simply turn out to be a very costly and permanently empty field.

For more information about land banking schemes or purchasing land for development, please call Karen on 0161 684 6951 or email karen.piontek@pearsonlegal.co.uk

Also in this issue of Insight

 

Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.

This blog was posted some time ago and its contents may now be out of date. For the latest legal position relating to these issues, get in touch with the author - or make an enquiry now.

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