Profit and purpose: how developers and charities can tackle the housing crisis together

Harriet Forster is a partner at law firm Wedlake Bell

Housing supply – or lack of it – is likely to remain a hot topic long after 4 July. The UK’s housing crisis shows no signs of abating, and the increasing number of institutional investors turning to residential development is testament to that sustained demand.

The starting point for many new homes is likely to be “strategic land” – land not currently used for housing, but has the potential for future development. This includes both greenfield sites and existing surplus buildings, and ranges in scale from a handful of new homes on the outskirts of a village to the large-scale re-imagining of an existing asset, such as a former hospital or military base.

Development doesn’t need to create risk for landowners

For charities and other organisations which own strategic land, there is a real opportunity to unlock value – both financial and social – through residential development.

For most charities, this will involve working with a developer and pooling resources. The landowner supplies the land, the developer contributes the expertise and resources needed to navigate the planning system – and the appetite for risk.

For the landowner, there is no planning risk or upfront expenditure. The developer spends its own money seeking planning permission, and if this is not successful the landowner will be no worse off.

If planning permission is obtained the property will be sold, either to the developer or on the open market. At the point of sale, the developer recovers its costs, and receives either a discount on the land price or a share of sale proceeds to reflect the work done and commercial risk taken to date. Even after these deductions, the landowner receives a much larger sum than if it had sold the site without planning permission.

A vision for social impact needs to be communicated clearly to development partners

As well as the financial benefits, a subject-to-planning transaction with a developer also gives the landowner an opportunity to shape the end result. This is particularly important for charitable/religious organisations, for whom the decision to forward land for development may not just be financially motivated but by a desire to secure lasting, tangible benefits for the local community and the surrounding area.

To make a positive impact through development, landowners must be clear about their priorities and communicate these from the outset. Ask yourself what you want your legacy to be. Is it biodiversity which really matters, or design, or affordable housing, or community facilities, or what? More often than not, a high quality scheme which provides real community benefit will also mean higher values. The key to delivering social value is to agree a shared vision for the site early on, which can then be fed into the legal documents, planning process and development appraisal.

Practical points to check

Alongside that bigger picture, there are practical points for charities to consider including:

• Does the organisation have the power to enter into the transaction? Check if the land is subject to any trusts (e.g. a requirement only to use for charitable purposes) and/or whether any statutory restrictions on disposal apply. This is particularly relevant for schools, religious organisations and literary/scientific institutions, the disposal of community assets such as village halls and sports grounds and any land which has been held by the charity long term.
• Compliance with the Charities Act 2011 (if applicable) – input from a designated adviser generally required prior to exchange.
• How long will the agreement last? This must be long enough for the developer to have a decent shot at getting planning permission, without dragging on indefinitely. When and how can it be extended/terminated?
• What will be paid when? Is there a payment on exchange? is this refundable if the transaction doesn’t proceed?
• Can the price be paid in instalments? A longer term financial view can give the developer breathing space to deliver a better scheme with more community benefit – and ultimately a higher market value – but the charity must make sure that future payments are properly secured.
• If the developer obtains an enhanced planning permission in the future, or sells on at a profit, will a further payment be made?
• What can be done with the land in the meantime? Can the existing use continue? Can it be let, and on what terms?