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Alternatives to Acquisition

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In these challenging times especially for developers looking at ways to save on the very expensive acquisition costs of land, the answer may lie in an increasingly popular 'joint venture'.

With acquisition funding often difficult to obtain and invariably expensive and with a low loan to value ratio, entering into development or joint venture agreements with the landowner whereby the payment for the land is switched to a profit share on disposal of finished development or residential plot, is an option for some to consider.

If these agreements are done correctly then the developer will have no land acquisition cost and the landowner has the protection that he maintains full ownership of the land.

So where's the catch - if any - in a seemingly mutually beneficial plan?

Andrew Pliener, who leads the Development team at Yorkshire Law firm Keeble Hawson looks at the scheme a little more closely:

"The Developer whilst saving the up front land payment has the basic problem that he does not own the land and must rely on the development / joint venture agreement for protection."

"He may be able to register something against the landowner's title to give comfort, but he is still to some greater or lesser degree "at risk" especially if the landowner has an existing mortgage or becomes insolvent during the build period."

Andrew continues:

"The Developer must also consider his development funding as he will not own the land being developed and may or may not be able to get a charge over it in favour of his funder."

"There are also practical issues over delays and ensuring the landowner is around to sign documents whenever necessary."

"The landowner has the advantage of owning the land and can impose in the Development / Joint Venture Agreement specific long stop dates and requirements, which if not met will bring the arrangement to an end leaving him with ownership of, potentially, a much improved site."

Last but not least, the landowner must ensure that any payment arrangements work and do not permit the Developer to delay - or even prevent payment for example - when payment is on disposal of the last unit on site.

Given sensible advice and a degree of realism between the Developer and the Landowner these sorts of arrangements can work to everyone's advantage and enable development, even in these challenging times.

Andrew Pliener can be contacted on 0113 399 3476 or andrewpliener@keeblehawson.co.uk

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