Due Diligence is vital to mitigate the risk of buying development land with outline planning permission.
Caveat emptor… “Let the buyer beware” is a well-known phrase that warns a buyer there are risks associated with any acquisition. History is littered with examples of purchases turning sour and exposing organisations to unexpected costs that could easily have been avoided. Gregory James from WP Housing considers how a robust technical due diligence report can mitigate much of the risk associated with buying land with outline planning permission.
Outline planning permission (OPP) provides high-level approval for a proposed development, indicating that the local planning authority is in principle supportive of a project. However, the specific details, such as building designs, layout, and appearance are not finalized at this stage.
Buying development land as a package deal with full planning permission and a contractor in place can have its attractions of time and cost. However, there may be some hidden issues that might only come out at a later stage. For example, one of the consequences of the pandemic saw housing associations facing a steady stream of inflation claims from contractors. Suddenly the cost security provided by a Design and Build Contract became increasingly redundant. Equally, design changes can see costs escalate.
OPP gives the developer greater flexibility to devise a scheme that aligns with their own development strategy and objectives. It allows affordable housing developers to secure suitable sites for development, potentially in areas where land availability is limited or where, in the case of housing associations, there is a high demand for affordable housing.
Before completing a land purchase, it is advisable to fully understand the constraints of the site that will directly impact your proposed development layout. Commissioning a Technical Due Diligence Report (TDDR) once an offer of Heads of Terms has been agreed, will give a buyer the opportunity to thoroughly evaluate the land’s potential risks, including legal, financial, environmental, and technical considerations.
A TDDR generally consists of a systematic investigation of the existing site, including a review and analysis of all surveys, reports, assessments, drawings, planning permissions and Section 106 obligations. It also helps the buyer in creating accurate development plans and budgets by uncovering any limitations, constraints or unforeseen challenges associated with the land.
During the preparation of TDDRs, we have seen potential obstacles being unveiled. For example, we’ve found tree preservation orders, flooding vulnerabilities, ecological considerations, and easements for utilities. All these can reduce the deliverable number of units and adversely impact project viability.
A TDDR checklist should include the following:
Answering this range of questions should help to gather all the necessary information to ensure a prospective purchaser has confidence in proceeding with their acquisition.
Purchasing land with outline planning permission means a developer can design and build a scheme that is tailored to their way of working. It will also avoid potentially costly changes to pre-designed schemes will all the inherent planning and funding implications. OPP sites should also be of a lower value than land that has already secured full planning permission.
Technical due diligence reports are a vital component before completing any site transaction. If the seller has conducted comprehensive due diligence, they will reduce the possibility of surprises or disputes occurring during the transaction process. For the buyer, potential issues and liabilities can be identified early on, enabling informed decision-making, risk mitigation and the avoidance of costly disclosures or legal complications in the future.CONNECT WITH GREG JAMES