Last year, the market became aware that housing association, L&Q, had purchased Gallagher, a private land business, thereby gaining access to land for the development of over 40,000 homes.
Whilst L&Q's acquisition is the most high profile, it is part of a growing interest from the sector in the concept of strategic land and its potential opportunities. The Daily Telegraph has been quoted as saying that strategic land is the "murky underbelly" of development. Is this an unfair tag and indeed what do we mean by strategic land?
Strategic land is the current "buzz" term given to the process of land assembly and planning promotion. In broad terms, it is the process of seeing land into a developable asset. So through site assembly, promotion and planning policy, CPO, infrastructure, procurement and collaboration, as land values continue to soar, control of land is a way to secure long term development. So what are the opportunities for housing associations? These broadly fall into two categories:
- A place on a framework or long term collaboration with a promoter. Essentially, this is the association securing a long term relationship with a promoter to be a "first choice" affordable housing partner. The idea would be that key commercial principle terms are agreed as part of the frameworks allowing individual sites to be easily called off. Promoters will then be able to market sites in the knowledge that there is an affordable housing partner on board to deliver any planning obligation. For associations this does not give direct land control, but can open up long term opportunities and access to units or affordable housing sites, largely on a package basis, which, for some, can be very appealing.
- Perhaps the bigger prize is becoming involved in the acquisition and promotion of strategic land itself; either alone or as part of a partnership, for example, buying into an existing strategic land company, providing an injection of cash to that vehicle and for the association, giving access to sites and opportunities. There are undeniably risks associated with strategic land, which need to be managed as part of an association's resources, but the potential rewards are significant and mean that associations are increasingly looking at this as part of their business activity.
What kind of structures are involved?
We advise clients on a range of transaction structures including:
- Conditional contracts and options – tailoring disposal or acquisition contracts so that they appropriately engage with project contingencies prior to land transfer. These typically include planning and promotion, site assembly, infrastructure/access land, abnormal ground conditions/contamination and drainage strategies.
- Payment structures and overage – devising or agreeing the appropriate valuation mechanisms where, as is often the case, the price will not be settled at the outset of the transaction. This involves navigating issues relating to deferred payment (and security) together with appropriate overage/claw back.
- Promotion agreement/land owner JVs – advising on transactions where the end developer of some or all of the land has not yet been identified and putting in place an appropriate agreement covering the planning, promotion and disposal phase. Transactions of this nature can be structured with the initial development partner responsible for promotion also being the developer by way of hybrid promotion or master framework agreement.
- Collaboration and consortium agreements - for projects of a more strategic nature, for example, urban extensions, where there is a mix of stakeholders, there is often a need for agreements covering project collaboration. This typically includes cost, risk and profit sharing mechanisms and may include equalisation of land values across sites where there are complex ownership issues/structures.
- Planning environment and infrastructure – it is possible to promote sites through emerging development plans as well as negotiating or appealing planning decisions and settling Section 106 Agreements to ensure that they are future- proofed for complex multideveloper sites. It would be important here to take advice on potential environmental liabilities, remediation strategies and warranty packages. Parties will need to think about infrastructure contracts, whether relating to shared site services, for example, roads and drainage, or community facilities such as schools and health care centres
- Project finance – Funders, whether third party or government agencies, need to be considered from the outset. Looking at the "funder's view" early means that the transactions are fundable and do not need to be unpicked at a later date.
So is this the "murky underbelly"?
Strategic land is not for everyone and is only suitable for those in it for the long haul, as projects can take many years to come to fruition. But for parties who can wait the duration (including the affordable housing sector) they will have direct involvement in shaping the built landscape for the future. A strategic land deal allows house builders to get on and do what they do best, i.e. build, and gives HAs a direct say in their long-term programme.
