General economic uncertainty is currently creating challenges for many UK business sectors. The housebuilding sector is particularly affected by the rise in borrowing interest rates and the impact that this is having on mortgage availability and consumer confidence. Despite these challenges, the demand and need for good quality sustainable and affordable new housing continues to increase. There is evidence of housebuilders focusing on their land supply in Scotland, and looking for opportunities to acquire new land options.
As recently reported, NPF4 is now part of the development plan in Scotland. NPF4 is already beginning to impact on how housing developers are defining their requirements for new land options. It should also affect the way in which landowners and their professional advisers look at land with development potential, whether or not there is a current option in place.
Under NPF4, planning authorities will be required to assess allocated sites (being land that has been "zoned" for residential development under current local development plans) against the same criteria as new sites. Deallocation becomes a greater risk, particularly for sites that have been allocated for some time with no obvious progress being made towards delivery of housing. Deliverability is key and landowners will have to start making some difficult decisions. Do they allow a site to be deallocated, or find a developer who is prepared to spend the money and effort in making sure that the site remains in the local development plan?
If there is an existing option agreement or promotion agreement then now is the time for landowners to dust that off and check whether the developer is complying with its obligations to actively promote the site, and also to check whether the option agreement is still fit for purpose. All but the most recent land options will have been negotiated in the context of the previous planning framework and many will not oblige a developer to take the steps that are now required to ensure that allocated sites remain in the relevant local development plan. This is a particular risk for greenfield sites, given the emphasis in NPF4 on redevelopment of brownfield sites at the expense of greenfield development. If a landowner has particular concerns, professional advice should be sought. It will generally be in both parties' interests to have an option agreement in place which accurately reflects the current planning framework, the development plan cycle and the steps to be taken to secure a deliverable planning permission.
All future local development plans will cover a ten year period and must identify a delivery housing land pipeline covering the short (one to three years), medium (four to six years) and long (seven to ten years) term. It is common practice for a developer to seek an option period that will cover two development plan cycles and depending on where a particular Local Authority is on that cycle this may mean them seeking an overall option term of twenty years or more. Land options of this duration will mean that a landowner is having to give greater consideration to tax and succession planning in the context of land options, whilst ensuring that fixed or minimum land prices maintain pace with market developments and value of money becomes a difficult logistical exercise for both parties. The potential for having to wait more than twenty years for payment will also make it more difficult for developers to motivate some landowners to agree land options in the first place.
Greenfield development of the right scale and design in the right location will inevitably continue to play an important role in the delivery of the housing that Scottish communities require. The co-operation and involvement of owners of land in rural locations and urban fringes is therefore crucial to housing delivery. Choice of development partner and clarity of planning strategy will, if anything, become even more important to the owner of land with development potential.
Please contact Graeme Leith, Elaine Farquharson-Black or your usual Brodies contact if you would like to discuss the impact of NPF4 on existing option agreements or future development potential of your land.
