If you own a commercial property which is larger than you need, selling part of it could be a good way to release value. Before you start, it is vital to have a clear idea of how the division will work from a practical point of view. This will ensure you do not end up having arguments over shared access roads or any disruption to your business as a result of your new neighbour’s activities.
‘Selling part of your land is not just a matter of taking the money and putting up a fence,’ warns Ian Cowan, solicitor in the commercial property team with Richard Reed Solicitors. ‘Each part will need rights of way, drainage, and a range of utilities. Time spent thinking this through with your solicitor will set you up for a successful transaction.’
Develop yourself or sell open land?
The first decision will be about whether you want to build on your vacant land and sell the completed development, or just sell the open land and leave the purchaser to build on it. Selling the land as it is will allow you to release capital more quickly, but the price will be lower to reflect the likely cost to the purchaser of carrying out the development. Your purchaser may want a conditional contract, under which they will only have to complete the purchase if they get planning permission to build.
You could also do a deal under which you would get a share of future profits if the land was sold on after being developed (known as overage). Conditional contracts and overage are common, but they require more complex drafting than a straightforward sale.
Rights over neighbouring land
Once the site has been split, each part will need access to and from the public highway, drainage, and utilities such as electricity and gas, water and telephone/broadband. You may be able to divide the land so that each part has all the necessary facilities direct from the public highway, without any roads, pipes or cables crossing the other part. If this is not possible, then you and your purchaser will each need clear permission to cross or run services through the other’s land. Rights like this are known as easements and your solicitor will need to draft them carefully in the legal transfer document. This will ensure that everyone is clear about what rights are being granted and will avoid any being implied unexpectedly.
Sharing future costs
If you end up sharing an access road, drains or other facilities, you will need a mechanism for sharing the cost and responsibility for keeping them in good repair. This is surprisingly tricky because, even if your purchaser agrees in their contract with you that they will carry out repairs or pay part of the cost if you do it, this obligation will not automatically pass if they sell the land on. Your solicitor can draft the documents so that each time the land is sold, the new owner must agree to take on these obligations. The documents will also need to make provision for who is responsible for ongoing boundary maintenance. The alternative would be for you to sell a long leasehold interest in the land instead of selling the freehold outright. It is easier to provide for ongoing obligations in a long lease, but if your purchaser needs a mortgage a freehold sale is more straightforward. Your solicitor can advise you on which route is likely to work best for you.
You should think about how a new neighbour may affect your land in the future. You may want to restrict how the land you are selling can be used in the future or what can be built on it. You could limit the number of buildings on the land or restrict their height or position to make sure light to existing buildings is not blocked. The law on rights of light is complex, so this is a very important area to discuss with your solicitor.
You may also want to restrict the types of activity that can be carried out on the land you are selling, so that you are not disturbed by things like noise, smells, additional traffic, or antisocial behaviour. Even though restrictions of this type are common, there are two important points to bear in mind. The first is that you must not impose limits which breach competition law rules. The second is that whoever buys the adjoining plot could apply to court in the future to have restrictions modified, or removed, if they are preventing a reasonable use of the land or are no longer giving you a clear benefit. Bear in mind that your purchaser’s solicitor may ask for matching restrictions on your land.
There are some practical issues to take into account when you are planning to sell part of your land. If you have a mortgage, you will have to get your lender to release the part you are selling. Unless they agree to this, the deal cannot go ahead. If you hold the land on a long lease instead of freehold, you will need the landlord’s consent to dispose of the relevant part and you will probably have to grant a long sublease of the part you want to sell.
Once the sale is completed, HM Land Registry will have to create a new registered title for the part you have sold. They will need a professionally drawn plan, showing the proposed boundaries and the route of any agreed access and utilities rights, as well as meeting other detailed requirements. Make sure you get the relevant information from your solicitor before you get plans drawn up.
How we can help
Selling part of your land could be the best way to extract value out of it, but it is important to plan ahead. Our team of legal experts will make sure you get all the necessary rights and restrictions in place to make the sale successful and avoid disputes in the future.
For further information, please contact Ian in the commercial property department on 0191 567 0465 or email: [email protected]