Insights

Landowners are often presented with a clear strategy, headline values and indicative timescales. In practice, outcomes are influenced as much by what goes wrong as what goes right. Many of the key risks are not obvious at the outset.

  

The core principle

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Land promotion and development is:

• uncertain

• long-term

• exposed to external factors

 

The objective is not to eliminate risk (which is not possible), but to:

• understand it

• manage it

• allocate it appropriately

 

The main risks

 

A. Planning risk

Planning outcomes are inherently uncertain. Even well-located or policy-supported sites may be refused or reduced in scale.

 

Risk is influenced by:

• local authority approach

• politics

• technical constraints

• and how those issues are managed

 

The key point is that planning is not a linear or predictable process.

   

B. Time risk

Promotion and planning typically take several years. Timescales are often underestimated.

 

Timescales can extend due to:

• local plan delays

• consultation

• appeals

• political changes (locally or nationally)

 

Delays affect:

• value

• market timing

• personal circumstances

 

This is one of the most consistently underestimated risks.

 

 

C. Market risk 

 This risk is often ignored at the start of the promotion process and only becomes apparent later.

• Land value is realised at the point of sale

• Market conditions at that time may differ materially from today

• Influenced by:

  • housing market

  • build costs

  • interest rates

 

A strong planning outcome does not guarantee a strong financial outcome.

 

 D. Execution risk

 This is about the quality of the planning strategy, the quality of the application and how political and local engagement is handled.

• Outcomes depend on:

  • The strength of the planning strategy

  • decisions made during promotion

  • how the application is evidenced and prepared

• Poor execution can:

  • lead to planning delays or failure

  • reduce value

  • limit appeal to developers

 

Not all promoters or advisers take the same approach. Please see our article on “How to Choose a Land Promoter” for more information.

  

E. Alignment risk

 It is important that landowner and promoter have aligned incentives. This is often overlooked but it is a critical risk. The structure of agreements determine:

• how decisions are made

• how value is shared

 

Misalignment can lead to:

• sub-optimal decisions

• disagreement at key stages

• reduced investment in the process

 

 

F. Agreement risk

 The commercial terms of an agreement need to work for both parties. As well as the premium and promoters fee, these include:

• the minimum price achieved

• how costs are recovered

• the duration of the commitment

 

Poorly structured agreements can:

• reduce flexibility

• lock landowners into sub-optimal outcomes

 

 G. Personal and situational risk

 The long-term nature of agreements means that changes in the landowners circumstances during the life of an agreement are quite likely. These might include:

• personal circumstances

• tax position

• family or ownership structure

 

It is important to build flexibility into the structure of an agreement wherever possible.

 

Most significant risks in practice

 In practice, the most significant risks tend to be:

• time

• uncertainty of planning outcome

• market conditions at point of sale

 

Many other risks are:

• secondary

• or manageable with good advice

  

Managing risk

 

Risks cannot be removed, but can be managed through:

• appropriate strategy

• careful selection of promoter / advisers

• well-structured agreements

• an understanding of where risk sits

 

Early advice is important to:

• test assumptions

• identify key risks before commitment

 

Conclusion

 

Land promotion can create significant value, but that value is achieved through taking informed risk. Understanding those risks at the outset leads to better decisions and better outcomes.

 

We typically advise landowners on:

 

• assessing risk

• structuring arrangements

• comparing options

 

If helpful, we can provide an initial view on the risks associated with your site.

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