Throughout the second half of the financial year we experienced a loss of momentum in the UK housebuilding industry. Here, we explore some of the key challenges which the sector has faced up to Q4 and which are likely to hangover into FY 23/24. We  also pick up on some emerging themes and reasons for optimism moving forward.

1. Increased mortgage rates, falling house prices and decline in market activity

The Bank of England increased its base rate on 23 March from 4% to 4.25%. Higher mortgage rates together with the cost-of-living crisis, is predicted to restrict affordability further and this has translated into reduced sales rates in Q’s 3 and 4. In Q3Savills forecasted a 10% fall in the UK average house price and, whilst there will be distinctions between regions, a rates hike coupled with the demise of Help to Buy does not appear to suggest that buyers (particularly first-time buyers) will be well placed to capitalise on any decrease in prices.

Despite this, some experts have identified an emerging distinction between the newbuild and second-hand market: with the former expected to out-perform the latter. Savills has reported how a similar trend emerged following the financial crisis in 2009, because homeowners were reluctant to sell their properties in an illiquid market. Certainly, the newbuild market has the potential to offer credible opportunities to first-time buyers provided that innovative alternatives to Help to Buy can be found and gridlock in the planning system can be overcome (see below).

2. Local plans, Gove, and a general election

Housebuilding has become one of the hottest of all political hot-potatoes this year. In December, the Government unquestionably took a backwards step when it watered down its 300,000 p/a delivery target. Since that announcement we have seen many authorities relent on new Local Plans and this has left so many in the industry scratching their heads.

Michael Gove has responded to his December announcement by declaring that the UK’s housing model is broken and that more homes are desperately needed. Meanwhile, Labour has pledged to increase home ownership to 70%. Whilst that offers some hope it is perhaps not unsurprising that a pro-build rhetoric from both major parties will emerge as we get closer to a general election. At present we look to progressive authorities (such as Calderdale which last month resolved to adopt a new local plan amidst the post-Gove pressure) to identify and promote suitable and deliverable sites to tackle the UK’s housing crisis.

3. Materials and labour market

The industry has experienced a significant increase in the cost of building materials and a shortage of skilled labour. These issues are a cause of concern for housebuilders and are likely to be particularly problematic where they are already contractually committed to a purchase. Financial appraisals conducted by housebuilders prior to Q2, may now be inaccurate and subsequently we are seeing deals either being re-negotiated or going abortive.

Expectations are for the labour crisis to endure throughout 2023 and to continue into 2024. It is reported that the construction industry is likely to see more skilled workers retire in upcoming years than any other industry. Fortunately, however, research from BuildPartner indicates that material prices are stabilising, easing some of the financial strain on housebuilders.

4. Nutrient Neutrality/Biodiversity Net Gain

The housebuilding industry continues to battle with the nutrient neutrality crisis and subsequently the implementation of many schemes has been stalled whilst mitigation strategies are agreed at a national and local level. It is estimated that 120,000 homes are currently being delayed across 74 local authorities as a direct result of neutrality issues. However, Local Authorities are starting to emerge with strategies for unlocking these sites. For example, South Somerset District Council recently announced a new nutrient credit model which will allow developers to purchase credits in order to offset their proposed schemes.

The requirement for new developments to deliver a 10% biodiversity net gain is scheduled to become mandatory in November 2023. In previous publications we have highlighted the challenges that this will bring to the industry (from a delivery to a viability perspective). Whilst we await further developments from Local Planning Authorities in the delivery of a statutory credit scheme, the private BNG ‘unit’ market is already flourishing with a range of providers ready to sell units to developers in order to offset any gains which cannot be delivered on-site.

5. A volatile land market

The effects of the widespread uncertainty in residential sales has unsurprisingly had a knock on effect when it comes to land acquisition. From Q2 onwards we have seen many developers step-back from new acquisitions. That may well continue into FY 23/24 and have a stabilising effect on land values which had risen dramatically in line with the house price boom post-lockdown.

Ultimately all developers need land to deliver new units and this uncertainty ought not to hang around for as long as many had feared. An emerging trend within the industry has seen greater use of joint-ventures and partnership models as a way of de-risking the development process for many in the market. It appears likely that this trend will continue through FY 23/24.

6. Alternatives to Help to Buy, Build to Rent, and assisted move packages

There are several alternatives to the Help To Buy Scheme which could reduce the impact of its demise. Examples include the Deposit Unlock Scheme, Deposit Boost, Home Reach and First Homes, which, together with the extension to the temporary reduction in stamp duty (cuts to stamp duty will remain in place for the next two years) have the potential to encourage activity in the new build market, particularly for first-time buyers.

The cost-of-living crisis is also likely to influence buyers to look at smaller and more energy efficient properties which has the clear potential to boost activity in the new build market. House builders who prioritise truly sustainable developments with high energy-efficiency credentials appear to be best-placed to capitalise on this new trend in buyer demand.

As much as the current economic climate could result in levels of homeownership becoming stagnant in the next FY, this is potentially good news for those operating in the build-to-rent sector. In Q3 the British Property Federation reported a 15% level of annual growth for the sector underpinned by a 93% rise in private renting since the early 2000’s. It should be noted that BTR schemes will have most impact in communities where people can live and work in the same place and so may not be suitable for more rural regions.

The housebuilding industry is facing an unprecedented range of challenges from all angles. Whilst this will continue in FY 23/24 the industry has demonstrated its robustness on many previous occasions and can do so again. We hope to see more progress in nutrient mitigation strategies and in the delivery of BNG, greater support, investment and reward for sustainable development and a greater appetite for solving the UK’s housing crisis at a national and local political level.

Greenwashing in the agricultural sector gets real

Lawyers acting for River Action, have put out a press release on 17 April 2023 saying they have filed three complaints with the Advertising Standards Authority about the Red Tractor’s advertising. This follows an article in the Times on 3 April 2023 quoting data from a 2020 Environment Agency report in which the Times suggests that Red Tractor farms are more likely to pollute the environment than other farms.

Why this matters

Founded in 2000, the Red Tractor scheme promotes itself as a “world-leading food chain assurance scheme that underpins the high standards of British food & drink“. The Assured Food Standard company states that its scheme offers the Red Tractor logo which is “the flagship logo of British food and farming, providing assurance at every stage of the production process, from farm to pack“.

If River Action’s challenge succeeds, the ASA’s usual sanction means that the use of the Red Tractor logo could be severely curtailed.

Detail

River Action’s complaint is based on the fact that it says there is evidence that many Red Tractor-assured farms do not meet the environmental standard promoted by the scheme. River Action relies on the same Environment Agency report which it says found that assured farms were responsible for agricultural pollution. River Action’s lawyers’ press release quotes sections of the Agency’s report and states that assured “farms were responsible for 62% of category 1 and 2 incidents and 56% of category 3 incidents. Significantly, the Report concluded that RT farms were less compliant (26%) with [Environment Agency] inspections compared to non-RT farms (19%)“.

The press release goes on to say that this “conclusion is consistent with those of a previous [Environment Agency] report of a case study carried out by the [Environment Agency] between 2016 and 2022 in North Devon. The [Environment Agency] found that of 101 farms visited, 87% were non-compliant with environmental regulations despite all being Red Tractor members“.

The ASA has jurisdiction to rule on all advertising in the UK including traditional newspaper and television adverts as well as social media and the content on companies’ own websites. Accordingly, the complaints to the ASA are based on the fact that River Action believes that the claims on Red Tractor’s website, YouTube channel and its most recent TV advert are misleading to consumers. If the ASA upholds the complaints its decision will mean that Red Tractors’ claims cannot be repeated in their current form.

What next

Given Red Tractor’s strong rebuttal on its website of the Times article which it says is “inaccurate, misleading and a disservice to Red Tractor dairy farmers” we can expect a strong defence of the River Action ASA complaints. Red Tractor says that the data in the Environment Agency’s report “actually supports the opposite conclusion” to the one drawn by the Times’ article. Given that River Action’s ASA complaints also rely on the Environment Agency’s report, we can expect Red Tractor to argue that its claims are valid and that use of the logo is appropriate in all circumstances as promoting the higher standards which are at the heart of the Red Tractor scheme’s aims.

We expect the ASA to rule on this in summer 2023 and it will no doubt be a highly anticipated decision.

Comment

This could be a big moment for the agricultural sector and for environmental claims more generally. If the ASA rules that Red Tractor’s claims cannot be substantiated and that the use of the Red Tractor logo is inappropriate given that the producers are not adhering to the standards the Red Tractor logo presents then this could flow all the way up the supply chain.

It is this “house of cards” which is the reason why this complaint to the ASA has wider significance. Even though all advertisers are supposed to hold relevant and contemporaneous substantiation for all the advertising claims they make, many companies rely on information from suppliers below them in the supply chain. Therefore, if River Action’s complaints are upheld and the ASA rules against Red Tractor, supermarkets and other retailers could start to question whether they should be promoting the Red Tractor logo in their advertising for fear of an accusation that they are “greenwashing”.

A salutary fairy tale

Read on if you want a graphic example to understand what copyright protects.

The Dragons – Fred vs Edgar

For people of a certain age, the song “Puff the Magic Dragon” has a particular resonance. For others, it is Harry Potter fighting dragons in the Tri-Wizards’ Cup or Hiccup taming his dragon, Toothless, in Cressida Cowell’s “How to Train Your Dragon”. The point is that for every generation since St George did his act of slaying (and probably before), dragons have been a part of our culture and have been portrayed innumerable times in art and literature.

Sometimes the creatures are malevolent and other times benign but almost always misunderstood. Clearly the claimant, Fay Evans, misunderstood the fundamentals of copyright when her dragon, Fred, took on John Lewis over its 2019 Christmas ad which featured, Excitable Edgar, the lovable but fire happy dragon.

Copyright law – the basics

Copyright is the “Ronseal” of intellectual property rights; it “does exactly what it says on the tin”. In simple terms it stops people copying. The complexity comes from the fact that it only stops the copying of the “expression of the idea” and not the idea itself. In practice, this means that you need to be able to show that a defendant has reproduced a substantial part of the copyright work be that a picture, photograph, piece of literature, etc.

Accordingly, provided you have a work which is your own “intellectual creation” that is “identifiable with sufficient precision and objectivity” then it will be protected by copyright such that you have the exclusive right to prevent others copying that work. However, what copyright does not stop is someone taking an idea or having the same idea independently.

The facts of the case

In Fay Evans -v- (1) John Lewis plc; and (2) DBB UK Limited, Ms Evans accused John Lewis and its ad agency, DBB, of taking the essential characteristics of her lonely, dragon character, “Fred the Fire-sneezing Dragon”. In the debut book of the same title, Fred, got into all manner of scrapes because his sneezes were accompanied by fire leading him to be ostracised until he eventually saved the day when he was able to cook his classmates’ lunch when the school oven failed.    

For those who can remember John Lewis’ 2019 Christmas campaign, you will recall that Excitable Edgar was an adorable young dragon who was “simply so excited about Christmas that he [couldn’t] control the flames from his mouth” and he burnt everything he encountered leading him to be sad and lonely. This was painful for everyone because all Edgar wanted to do was get involved in all the festive celebrations.  Eventually, Edgar came to the rescue by using his fire to light the streetlights, clear ice from a path and put a flame a top a Christmas pudding.

Dragon hide and snake oil

At a level of abstraction, there are similarities between Fred, the fire‑sneezing dragon, and Excitable Edgar. However, this is snake oil – the similarities were worthless to Ms Evans in her attempt to prove copyright infringement.

First, many of the “copied” elements could be attributed to hundred of stories about dragons or other characters from literature. They are timeless attributes given to characters who had to find their purpose before they could be understood and welcomed into society.

Second, there was no evidence of copying. The book, “Fred the fire-sneezing dragon”, sold in very small numbers (only 120 or so copies being purchased from Amazon or on the Claimant’s website), mainly in primary schools in the North West of England where there was no evidence that anyone involved in the creation of the 2019 John Lewis advert or Excitable Edgar lived.

Third, DBB put forward credible evidence of independent creation. Excitable Edgar was himself a work of “intellectual creation” who was “identifiable with sufficient precision and objectivity” and not the result of any copying. Any similarities were purely coincidental.

Fourth, the preparatory steps for the John Lewis advert began in 2016 whereas Fred, the fire‑sneezing dragon, was published in 2017. Therefore, even though the final creative was not used until Christmas 2019, the judge was satisfied that DBB did not have access to Ms Evans’ work.

Conclusion – smoke without fire

Since the beginning the story telling, dragons have breathed fire with all manner of consequences but in a copyright claim this does not amount to evidence of copying. Therefore, while it might be gut wrenching to see another work that appears very similar to your own copyright work, do not be tempted to make accusations of copyright infringement unless you are able to prove that the defendant had access to the original work. The lessons that can be taken from this case are universal and all too common and simply show that independent creation can lead to similar results; smoke but without the fire.

When considering the opportunities for the development of land, one of the first matters to check is whether the land abuts a public highway at its intended points for access and servicing.

Unregistered land in unknown ownership intervening a registered title boundary of land and the public highway is a surprisingly common issue.

Here are a few things a landowner may wish to consider to address this issue when preparing land for sale:

1. Are you aware of any gaps?

   Check that your title plan accurately reflects the boundaries “on the ground”. A developer will undertake thorough title investigations and searches to establish ownership of land and the status of roads. Where possible, overlay the title plan with a highways plan to make an accurate assessment. Pre-empting and actioning any issues now will make for a simpler and quicker sale.

2. Is the title plan correct?

   The position of the title boundary will depend on the terms of the relevant pre-registration documents, and the Land Registry will complete a first registration without making further detailed enquiries as to the precise location of the boundaries. Therefore, a title plan reflects only what the Land Registry concludes to be “a reasonable interpretation of the land in the pre-registration deeds in relation to the detail on Ordnance Survey mapping” (Land Registry Practice Guide 40). If you think an error has been made in the mapping, it may be possible to persuade the Land Registry to correct the mistake. However, it is usual that a Land Registry plan will show only a “general boundary” and a general boundary does not determine the exact line.

3. Are the highways records correct?

   It may be possible to invite the highways authority to inspect a potential “gap”, and to amend their records to confirm the designation of public highway right up to the title boundary.

4. In the event of development of the land, could the access be re-designed so that roads and services do not need to pass over any gap?

   This is likely to depend on a variety of technical matters including the topography of the land and cost.

5. Have you been in exclusive occupation of any gap between the title boundary and the public highway for at least 12 years?

   It may be possible to make an application to the Land Registry for adverse possession, depending on available evidence, to obtain a possessory title. The question then will be whether a possessory title to part of the land will be sufficient for a developer, and it is likely that this would need to be combined with a title indemnity insurance policy. Land Registry applications can take some time to process, so it’s a good idea to submit any relevant applications at an early stage.

6. Have adequate rights of way over the gap been acquired over time?

   Acquiring rights by long use is complex and will depend on a variety of factors including how long the right of way has been exercised and whether it has been without interference. If an easement is established, developers are likely to question whether development would constitute an excessive use of it. If you think you might be relying on rights established over time, then consider taking further advice on this.

7. Is title indemnity insurance available?

   It may be possible to obtain an insurance policy to cover the risk of a third party claiming an interest in the gap. A policy often provides cover in respect of the costs of obtaining a private right of way over the gap, obtaining an alternative access, acquiring the gap, or pursuing a Section 228 procedure (see below). It may also cover the difference in market value with or without the defect. However, insurers often prefer insurance to be put on risk following the outcome of a planning decision, as this often reveals any third-party objections. The insurer will also look at the gross development value (‘GDV’) of the land when calculating the premium. Therefore, the likely GDV and whether insurance is sought pre or post planning will impact cost. Careful consideration should also be given to actions which might invalidate an insurance policy, which means other possible solutions (such as contacting the Land Registry or the highways authority) then become excluded.

8. Do one of the following presumptions apply?

   These are helpful and worth considering, but are rebuttable:

• Ad medium filum. This presumption states that the boundary of land abutting a roadway extends up to the middle point of the road. This will apply to the subsoil if the road is highway maintainable at public expense.
• Hedge to hedge. It is presumed that a highway extends to the whole width of the space between fences or hedges on either side of the highway and is not limited to the made-up part of the roadway.
• Hedge to ditch. Where two properties are divided by a hedge and a ditch or a ditch and a bank, there is a presumption that the boundary is along the opposite edge of the ditch from the hedge or bank. This is based on the principle that an owner, standing on his boundary looking inward, dug his drainage ditch within his boundary, threw up the soil on his home side, and then planted a hedge on the mound.

9. Could an application be made in the future for adoption as public highway via Section 228 of the Highways Act 1980?

   This procedure may be applied where street works are undertaken and the highway authority gives notice that the road is to become adopted highway. If a third-party landowner objects within prescribed timescales, the highway authority can still apply to the court for an order declaring the street as adopted highway. This power is useful where there is no known landowner and a Section 38 process cannot be used.  There is a commercial risk associated with this solution as the procedure would only be started at a later date when works had been undertaken. There is also no guarantee that the highways authority would co-operate and agree to the vesting, although it may be possible to contact the highways authority to seek an indication as to whether they would cooperate with a Section 228.

This is by no means an exhaustive list. Consider whether it would be helpful to seek legal advice early on in any transaction to assist in preparing land for sale and development.

Ask Rosie Huntington-Whiteley and she’ll tell you that “Influencers” have been in the advertising regulators’ crosshairs for the last couple of years. Now there is new guidance on the  Advertising Standard Authority’s (ASA) website as to how to keep your advertising “legal, decent, honest and truthful” when engaging your favourite celeb or YouTuber to promote your products.

Why is this guidance important?

This guidance is important because it is the joint effort of the Competition and Markets Authority (CMA) and the Committee of Advertising Practice (CAP). The fact that the CMA is increasingly flexing its muscles in the consumer space should make businesses sit up and take note because its enforcement powers are far more serious than those of the ASA; the body which enforces the CAP’s Codes.

What’s new?

The new guidance pulls together a number of strands of the law.  It is new because of the emphasis it places on the Consumer Protection from Unfair Trading Regulations.  While these CPUT Regulations are now nearly 15 years old, they rarely get the attention they deserve because they are enforced by the cash starved, anaemic Trading Standards Service. So the fact that the CMA has thrown its weight behind them in the context of the “Influencers’ guide to making clear that ads are ads” means that advertisers need to take note.  Given that the usual sanction issued by the ASA is that an offending advert must not appear in its current form again, the CMA’s involvement “ups the ante”.

Why has the guidance been issued?

The guidance has been issued to deal with the generational shift in media consumption.  If you are over 55, you consume most of your media through the traditional platforms of scheduled TV and radio.  If you are 15 to 30, you consume almost everything on demand.  Accordingly, whether your social media platform is as Facebook, Instagram, Snapchat, TikTok, Twitch, YouTube or something else, your adverts are rarely going to be packaged into the neat 30 second slots that wrap around Coronation Street. As a member of Gen Z, the chances are that your ads will be served by an algorithm or an influencer.

So what does it say?

First, the guidance is directed to the influencers rather than the brands and ad agencies.  However, from a reputational perspective, failure to comply with the guidance will only really hurt the products and services of brands promoted by the influencers. So if you use “bloggers”, “streamers”, “celebrities” or “content creators”, you need to read this article as they all fall within the scope of the guidance.

Second, the guidance makes clear that “‘unfair commercial practices’ [are] against the law. These include using editorial content in the media to promote a product where a trader has paid for the promotion without making that clear in the content or by images or sounds clearly identifiable by the consumer (advertorial).”

The message to influencers is if “you’ve received payment or any other incentive from a brand, or you are otherwise personally or commercially connected to the brand, any related content will need to make clear that it’s advertising.”

What is a “commercially connected to the brand”?

The guidance states: “If you have any kind of commercial relationship with a brand, this qualifies as ‘payment’. This includes;

• being a brand ambassador;
• being a shareholder;
• being a director or having a position in the company;
• you are collaborating on your own ‘edit’ or ‘collection’;
• you are receiving an exclusive discount or a commission; or
• you are given products, services, trips, hotel stays, event invites, loans, leases, rentals, or shares etc. for free (whether requested or unsolicited).

It doesn’t matter if there was no obligation to post about free items/services received, it still counts as ‘payment’ and needs to be disclosed.”

And this extends to content which “contains or directs people to a link or discount code that means you get paid for ‘clickthrough’s’ or sales, it counts as advertising because it is ‘affiliate marketing’.”

What do you need to do to stay on the right side of the law?

You need to make sure that “People should be able to recognise immediately when content is advertising, without having to click or otherwise interact with it. It needs to be clear and obvious, so people shouldn’t need any special knowledge or have to figure it out.”

This means using hashtags such as #Ad, #Advertising, etc and the “main thing to remember is that you need to make it obvious from the outset. Any label you use needs to be clear, prominent, upfront, timely, appropriate for the platform and format of the content (e.g., a post, a story, a reel), and suitable for all potential devices (it needs to be clear on mobile and apps too!).”

Conclusion

This guidance comes on the back of five years or so of ad hoc enforcement activity by both the ASA and CMA.  However, now that the guidance has been codified expect to see a much more concerted effort to ensure that all influencer advertising is “legal, decent, honest and truthful”.

What are the issues and how can I ensure the ransom strip remains valuable?

This article is one in a series looking at methods of structuring strategic land transactions. Further and more detailed information about other elements of strategic land can be found on our strategic land page.

A common feature when selling development land is retention of a strip of land along any boundaries with adjoining third party land that could have future development potential but would likely need to run access or services across the ransom land. Structured properly, any third party looking to develop the adjoining land will need to pay to cross the ransom. This article considers the issues arising when negotiating retention of ransom land and/or its release and how to maintain its value.

1. What does a ransom strip look like?

Ransom strips are usually defined as a strip of land ranging between 0.3m to 0.5m wide specified to lie between certain points shown on a plan. They sometimes physically exist on the ground and are demarcated from the main title by a fence or other structure, however, more commonly they exist only on paper. Ransoms are often at risk of being lost through adverse possession by third parties, especially if they do not exist on the ground.

Ransom strips are usually created by being retained when a landowner sells the main site. Where land is sold under a promotion agreement, a ransom strip can be jointly owned by the seller and the promoter thereby giving both parties the right to share in any future value generated by it.

2. Is the ransom ransomed?

Merely retaining ownership of the strip may not be enough to realise full value from a third party who needs to connect through it. When selling the main title, unless the sole reason for the ransom is to prevent the main site purchaser acquiring adjoining land, the landowner should reserve full rights of access and services for the benefit of the ransom land.

It may be appropriate for a developer of the main site to install an access road and services to a connection point with the ransom or alternatively, for the owner to enter the site to do so. The owner may need to carry out later works to upgrade or increase capacity of the same. It may also need the main site owner to procure adoption and/or enter into planning, works or other statutory agreements. Such obligations would ideally be protected by title covenants and possibly a title restriction. Without considering these points, a landowner may find the ransom worthless.

3. How much is the ransom worth?

The advice of an experience surveyor will be required to assess value. The ransom landowner of fully ransomed adjoining land can often expect to receive 30% – 50% of the increase in value. The surveyor will consider the residual calculations, comparable evidence, construction costs and profits. The timing of the valuation will also have an impact. A developer may wish to negotiate value and complete the release of a ransom before obtaining planning permission.

4. How can I protect my ransom land?

Ensure that the ransom strip is properly registered at the Land Registry. If the ransom land is unregistered, attend to voluntary first registration. Set a ‘Property Alert’ on the land at the Land Registry so that you are notified if any third party seeks to register any form of notice against the land.

The purchaser of the main site may need access to the ransom land in order to carry out development works and/or comply with planning conditions. If rights are granted over the land, then these may circumvent the ransom. Rights should be restricted wherever possible, however, if the purchaser insists on access over the ransom, restrict these to the use of the site and specifically state that no rights may be granted for the benefit of any adjoining land. Bear in mind that once services are installed and adopted, they are controlled by the utility company who may allow adjoining landowners to connect.

5. When releasing a ransom, should I transfer the land or simply grant rights over it?

If the ransom land payment has been calculated based on a specific development, consider whether the landowner wishes to share in future increases value if planning on the adjoining scheme is improved or proceeds with a more valuable form of development. Retaining ownership and granting rights over the ransom for the specific development, may allow the landowner to keep control.

6. Should a ransom strip be retained when selling my land?

Whilst a ransom strip may sound an attractive structure to claw back value realised from adjoining land, a landowner should consider overage as an alternative approach. Overage terms protected by title restriction may be easier to protect and enforce than theoretical ransom land that does not exist on the ground.

Further and more detailed information about other elements of strategic land can be found here.

After the last few years of unprecedented change for our clients and contacts, as well as our own business, we felt it was time to create a new blueprint for what we stand for today – and where we are going in the future.

We are pleased to announce the launch of our new strategy and brand. We’ve sharpened our focus and honed our values, to help us to navigate a more positive future for our clients, our communities and our own business.

Destination 2030

At the heart of our new strategy, Destination 2030, is an ambition to develop a more diverse, equitable, and engaged business, with a vision that delivers both profit and purpose.

Tim Richards, Managing Partner at Michelmores said:

“In the times that we live in, of great change and uncertainty, our vision is to guide our clients towards an enduring, sustainable and resilient future. I am genuinely excited about how we will be helping our clients to navigate change and opportunity, and to help them create more sustainable business models for the future.”

Please take a moment to watch our new Firm video and have a look around our website.

As the market for environmental service payments rapidly expands some landlords have seen a potential opportunity to recover possession of land from tenancies protected by the Agricultural Holdings Act 1986 (“the 1986 Act.”)

Many landlords are considering the opportunities that biodiversity net gain (“BNG”) and nutrient neutrality represent, to say nothing of the existing carbon markets. All of these markets involve changes to the use and appearance of land whether that is habitat creation, cessation of farming or the management of woodland. The planting of trees from small copses to large scale afforestation can form part of these plans.

Definition of agriculture

It is therefore worth considering how the 1986 Act deals with the issue of tree planting. The question of purpose is the first consideration as the definition of agriculture states:

““agriculture” includes horticulture, fruit growing, seed growing, dairy farming and livestock breeding and keeping, the use of land as grazing land, meadow land, osier land, market gardens and nursery grounds, and the use of land for woodlands where that use is ancillary to the farming of land for other agricultural purposes, and “agricultural” shall be construed accordingly.”

So where new woodland planting is planned for a use which is not ancillary to agricultural use that will result in a change of use of the land. It is suggested that the definition of agriculture was designed to deal with the planting of shelterbelts etc which are ancillary to the primary agricultural use of the land.

Agricultural or non-agricultural use?

The planting of trees for habitat creation purposes would, in my view, be a non-agricultural use and indeed in a nutrient neutrality context would have to be in order to demonstrate the required cessation of agricultural activity. It is possible that agricultural use could continue on lightly afforested land used for habitat creation, perhaps through extensive conservation grazing. In those circumstances there is arguably no change of use and the agricultural label remains firmly affixed. This could be important to the landlord as well as the tenant, as it could assist with the securing of agricultural property relief for inheritance tax purposes.

Whether or not a change of use has occurred is important because of the operation of the 1986 Act.

Planning permission

Although the planting of trees can effect a major change in the landscape, such an operation does not, of itself, require planning permission, although an Environmental Impact Assessment may be required from the Forestry Commission. This is despite the fact that there would be a change of use from agriculture to woodland.

Section 55 Town and Country Planning Act 1990 (“TCPA90”) defines “development” and development requires planning permission. It also identifies what is not development, and includes the following:

“(2) The following operations or uses of land shall not be taken for the purposes of this Act to involve development of the land—

[…]

(e) the use of any land for the purposes of agriculture or forestry (including afforestation) and the use for any of those purposes of any building occupied together with land so used”

The TCPA90 does not include a definition of “forestry” or “afforestation”, but the Forestry Commission guidance on “Environmental Impact Assessments for woodland” (dated 28 September 2021) (“the Guidance”) states:

“Afforestation means conversion of a non-woodland land use, for example agriculture, into woodland or forest (these terms are used interchangeably) by means of planting, or facilitating natural regeneration (self-sowing) of trees to form woodland cover. This can include proposals for short rotation coppice (SRC) and short rotation forestry (SRF), including energy crops and Christmas tree plantations.”

Case B of the 1986 Act

If planning consent is not required, then a landlord will not be able to rely on the provisions of Case B of Schedule 3 of the 1986 Act. It must be remembered that there may be other aspects of a particular project which effect a change of use of the land or require development which may require planning permission.

Where perhaps Case B will come into consideration is where developers re-organise their projects to try and put landlords in a more favourable tactical position. If we consider the example of a redline development area of say 10 acres. Plans may be in existence to cover this with houses but the advent of the Environment Act 2021 (“EA 2021”) and the need for BNG necessitates a change. Now the developer may require a redline area of 20 acres to accommodate the original number of dwellings plus the land required for onsite BNG mitigation.

SUDS

A further point here is the recent decision by the Government to implement Schedule 3 of the Flood and Water Management Act 2010, which makes Sustainable Drainage Systems (“SUDS”) compulsory for all new development. This places a further burden on developers, who will have to acquire bigger sites or build fewer or smaller houses.

This new 20 acre combined development and mitigation site could be the subject of a new planning application, which if granted could found a valid Case B notice to quit. That is a very different proposition to the original 10 acre application with an accompanying purchase of the necessary BNG credits or similar mitigation provided on a separate site some distance from the development.

I can’t see that the extension of the development site to accommodate SUDS or BNG mitigation would invalidate a Case B notice to quit. This is because the BNG mitigation or SUDS within a development redline boundary would clearly be of a non-agricultural nature and would require planning consent as part and parcel of the housing development.

Renegotiation

In light of these developments, we might expect to see renegotiation of existing option and promotion agreements between developers and landowners or tactical discussions prior to the service of a notice to quit. My advice has always been that those tasked with getting planning permission should link up with those in charge of securing vacant possession as early as possible. That advice is even more relevant in the current climate.

Natural capital and section 27

Coming back to natural capital schemes, if a change of use is being effected from agricultural to woodland use then section 27 (3) (f) of the 1986 Act comes into play. That states:

27        Tribunal’s consent to operation of notice to quit.

(1)        Subject to subsection (2) below, the Tribunal shall consent under section 26 above to the operation of a notice to quit an agricultural holding or part of an agricultural holding if, but only if, they are satisfied as to one or more of the matters mentioned in subsection (3) below, being a matter or matters specified by the landlord in his application for their consent.

(2)        Even if they are satisfied as mentioned in subsection (1) above, the Tribunal shall withhold consent under section 26 above to the operation of the notice to quit if in all the circumstances it appears to them that a fair and reasonable landlord would not insist on possession.

(3)        The matters referred to in subsection (1) above are—

(a)        – (e)……

(f)         that the landlord proposes to terminate the tenancy for the purpose of the land’s being used for a use, other than for agriculture, not falling within Case B.

Availing themselves of section 27 (3) (f) a landlord could therefore serve a notice to quit in circumstances where tree planting is proposed. However, there is an important safety net for the tenant; the Tribunal will not give consent to the operation of the notice to quit if they consider that a fair and reasonable landlord would not insist on possession.

Fair and reasonable landlord

On the face of it, it could be argued that a desire to tackle climate change through afforestation is a laudable aim and that a fair and reasonable landlord would insist on possession. However, I am not sure that the average Tribunal would see things through such a macro lens.

The test is meant to be that of the hypothetical landlord and so objective in nature, but the Tribunal is human and inevitably, subjective views will be brought to bear. Every Tribunal will be different and one person’s view of what is reasonable and the importance or otherwise of climate change etc may radically differ from another’s.

Scale & context

Much may depend on scale and whilst consent might be given for possession of part of a holding, the economic and personal impact of losing a whole tenancy may well tip the scales in the tenant’s favour – even in the face of the global emergency of climate change.

Similarly, context will play a part and if a landlord has a well worked up landscape scale recovery plan on the stocks, with one dissenting tenant blocking progress for the wider river catchment community, then that might swing the decision back into the landlord’s camp.

Every case will be different and although we are working in a rapidly changing environment some things remain the same; that fundamental weighing up of the benefit to the landlord, as compared to the detriment suffered by the tenant, will still have to be performed by the Tribunal. Context is everything and early and sound professional advice will be essential.

There are various deal structures that may be used when selling land with development potential. Which structure best suits the transaction may be driven by a number of factors and ultimately comes down to the degree of risk, control and flexibility required by the parties. We provide a summary of the main deal structures below. Each has its merits and landowners may wish to remain flexible to attract a greater level of interest following which terms can be compared.

Option Agreement

The landowner offloads the risk and the developer seeks to secure a satisfactory planning consent for development within a specified period of time, taking on the associated costs. In return, the Developer has the exclusive right to purchase the land once planning is secured either at a pre-agreed fixed price or at a discounted sale price, usually a percentage of open market value between 75%-90% depending on the degree of risk and return. The costs of promoting the land and securing planning are usually deductible from the land value, however, these are often capped at an agreed amount to give the landowner more certainty. An upfront option premium may also be paid by the developer to the landowner.

An option is a binding agreement and, if not exercised by the developer, will come to an end. They are generally preferred by developers to other strategic land sale structures and more common where sites are likely to take longer than two or three years to achieve planning consent. A conflict of interest between the landowner and developer may arise when negotiating the ultimate sale price which is not tested on the open market (unlike a promotion agreement). To protect the landowner’s position a minimum price return and a cap on costs may be included.

Promotion Agreement

The landowner enters into an agreement with a specialist promoter and, similar to an option agreement, the promoter uses reasonable endeavours to obtain planning consent for development at its own risk and cost. The difference from an option is that when consent is secured the land is sold in the open market (rather than to the promoter) and the promoter shares in the net sale proceeds after planning costs have been deducted and reimbursed to the promoter. The promotor typically receives a promotion fee on the sale of 10-25% sale price after deductions.

Promotion agreements are often preferred by landowners as the sale price is market tested and the open market value may be higher in the open market without being restricted by assumptions in calculating market value included in an option which may be disputed. The Promoter will make a profit without having to finance the acquisition or development and its interests remain broadly aligned with the landowner’s interests throughout the process.

Hybrid Agreement

Hybrid agreements offer a blended approach. The landowner grants the developer an option with the ability to elect to sell the land or parts of the land to a third party and share the sale proceeds with the landowner. Similar to a standard option, the Developer may acquire part of the site on securing planning consent for a discount of market value, however, a hybrid agreement may require the remainder of the site to be marketed and sold to the highest open market bidder, akin to a promotion agreement. The sale price for the part that is sold on the open market may then be used as the basis for calculating ‘market value’ in the option element of the agreement. This avoids the price being determined on the basis of an RICS Red Book valuation, which may result in a lower land value as mentioned above.

A hybrid agreement is often most suitable for larger sites where there is sufficient land to be sold in phases. The advantage to the landowner with the hybrid structure is removal of the conflict of interest in agreeing the sale price. A complexity that can arise is over who builds the initial roads and services where the land is being sold in phases.

Conditional Contract

A conditional contract is a binding agreement on pre-agreed terms. Unlike an option or promotion agreement, the terms are identified and agreed at the outset. This usually includes the price, extent of development and the parameters for fulfilling any condition. The parties must proceed with the sale and purchase on these agreed terms once the condition is satisfied and within the stated timescales.

In relation to the sale of land for development, the condition would usually be the buyer obtaining a satisfactory planning permission. The buyer must use reasonable endeavours to procure satisfaction of the condition within the specified timescale. Once satisfied, the contract becomes unconditional and the sale completes. If the condition is not satisfied by the stated date, then the contract will terminate.

A contract conditional on planning is usually more suited to sites which are allocated in the relevant local plan for development, or where there is already outline planning permission and it is agreed that the contract shall be conditional on the grant of a reserved matters consent. They may not be appropriate where there are other uncertainties in addition to planning.

Unconditional Contract with Overage

Another option on selling development land may be to agree an unconditional sale, with or without full planning consent, for an agreed price but retaining the right to receive a further payment should planning/further planning consent be secured or the site be developed more than an agreed threshold. This clawback of future value can be agreed by way of an overage agreement. The additional sum of money payable to the seller landowner may be triggered on achieving planning permission, a change of use, development of an additional area or additional dwellings, or the sale of dwellings at a price which exceeds an agreed threshold.

The benefit of this arrangement for the landowner is the immediate receipt of capital monies, however, the overage payment is entirely contingent on future events outside the control of the landowner and is therefore at risk. The risk associated with the overage payment may be reflected in the commercial terms of the overage that are negotiated.

Best fit

Landowners are often advised that a promotion agreement would be in their best interests and realise the greatest land value, mainly due to the sale price being market tested. A developer may, however, offer very competitive terms for an option agreement where it wants to build out the site. Ultimately which structure is the best fit will depend on the circumstances and terms offered and landowners are well advised to consult an agent and solicitor with experience in this complex area in order to plan early.

Information About Us

We are Michelmores LLP, a limited liability partnership registered in England and Wales with registered number 0C326242 and registered office at Woodwater House, Pynes Hill, Exeter, Devon, EX2 5WR. Our contact details are as follows:

Telephone: 01392 688688

Fax: 01392 360563

Email: enquiries@michelmores.com

General Terms

Thank you for booking to attend a Michelmores LLP event. This page sets out the terms and conditions which apply to your booking and should be read in conjunction with our website terms and conditions and privacy policy. By booking to attend an event you agree to be bound to these terms and conditions.

You should print a copy of these terms and conditions for future reference.

Please click on the button marked “I Accept” at the end of these terms and conditions if you accept them. If you do not accept these terms and conditions, you will not be able to book using our website.

After placing a booking, you will receive an email from us acknowledging that we have received your booking. Our confirmation email will indicate that your booking has been accepted.

Please check your event booking confirmation email carefully and notify us in writing within 48 hours of receipt of the email of any errors with the booking and/or amendments that are required to the booking. If you do not receive a confirmation email from us within 72 hours please contact Naomi Morris at Michelmores LLP on 01392 688688 or at naomi.morris@michelmores.com.

You acknowledge and agree that Michelmores LLP reserves the right to:

• alter the programme, speakers, timing and/or venue of the event without prior notification
• postpone the event
• cancel an event up to seven days before the date of the event. (If Michelmores LLP cancel an event they agree to refund 100% of the booking fee where this has been paid in full.)

You acknowledge and agree that Michelmores LLP will not be held responsible for any losses, costs, damages or expenses (including, but not limited to, travel and accommodation expenses) for delegates who fail to attend the event for any reason including cancellation of the event by Michelmores LLP.

Price and Payment Terms

The price of the event will be as quoted on our website from time to time, except in the case of obvious error. These prices are exclusive of VAT unless otherwise indicated. Prices are liable to change at any time, but price changes will not affect bookings in respect of which we have already sent a booking confirmation email to the delegate.

You acknowledge and agree that, unless otherwise agreed with Michelmores LLP, all bookings shall be paid for at least 7 days prior to the date of the event.

Payment for all bookings may be made by credit or debit card. We accept payment with Visa, Visa Debit, Mastercard, Solo, Maestro and Visa Electron.

Michelmores LLP’s preferred method of payment is by credit card at the time of booking. However, you may request an invoice to be sent to you for the price. This invoice will specify an invoice number, which you should quote when you make payment.

Cheques should be made payable to “Michelmores LLP” and the invoice number should be quoted on the remittance statement and on the back of the cheque.

You acknowledge and agree that all invoices are due to be paid within 30 days of invoice date. When an invoice is issued less than 30 days prior to the event, payment should be made in full 7 days before the event takes place (or, where relevant, before the first session of a series of events). All disputed items must be notified in writing within 14 days of invoice. You acknowledge and agree that we will exercise our statutory right to claim interest and compensation charges under the Late Payment of Commercial Debts (Interest) Act 1998 as amended and supplemented by the Late Payment of Commercial Debts Regulations 2002 if payment is not received in accordance with our agreed terms of payment.

Cancellations and Transfer Terms

You acknowledge and agree that:

• all transfer requests between delegates will be made in writing to the Michelmores LLP
• all cancellations of bookings will be made using the cancellation form or any other clear statement to us within 14 days after the date of booking, unless the event has taken place within this period. Transfers can be made from one delegate to another but only one transfer between delegates is permitted per booking

Michelmores LLP cannot offer refunds to delegates who fail to attend sessions.

If you would like to cancel your booking, please complete and return our standard cancellation form.

There are two major sets of planning reforms currently being considered, both of which could affect rural landowners in England in various ways, if they are enacted or policy is brought in.

The Levelling Up and Regeneration Bill

The first reform is the Levelling Up and Regeneration Bill, which is in the House of Lords for its second reading.  Its remit goes well beyond just planning, as it aims to advance the Government’s levelling up agenda, by spreading economic opportunity and better living standards across the country, including reducing environmental disparities.

Additional powers are to be given both to new combined county authorities and to local communities, with the aims of bringing about regeneration, including through a planning system which places beauty, democracy, adopted local plans, the environment and neighbourhoods at its heart.  The Bill does not contain the detail on how these changes would happen in practice; we will have to wait for secondary legislation (and also consider proposed changes to the National Planning Policy Framework (“NPPF”), as outlined below).

The Bill looks at replacing the existing EU environmental systems of Environmental Impact Assessments and Strategic Environmental Assessments with Environmental Outcome Reports, but again, the detail is to be left to secondary legislation.

The countryside does not currently feature in the Bill, as many rural action groups had hoped.  Such groups are lobbying for rural areas and countryside designations to be given additional protections in the future law, rather than to be left (often in vague terms) to the NPPF and other policies.

National Planning Policy Framework

The second set of reforms, which will be of more relevance and interest to the readers of Agricultural Lore, are those proposed to the NPPF.  A consultation document was issued just before Christmas, which looked at both the above Bill and current and future changes to the NPPF. Alongside this consultation a tracked change version of the NPPF was published, manifesting what the Government considers to be the initial, quick fix, policy amendments.

One of the most important changes to some rural estates will be the proposal for food security provisions to be factored into decisions affecting farmland.  More detail and ways of strengthening this are being discussed.

Housing requirements relaxed

Landowners considering selling land for development will also be interested in the proposed changes to weaken and make more flexible the existing housing needs requirements. This includes greater flexibility over green belts, which will not need to be reviewed, even if meeting the identified local housing need would then be impossible.  It seems that the Government’s aspirations of meeting housing needs targets will be kicked into the long grass.  This, together with the proposed changes to the 5-year housing supply and the Housing Delivery test are likely to slow down the delivery of new homes.  This is rather ironic, as the Government seems intent on penalising developers, who have been or try to build out sites too slowly.

Biodiversity Net Gain measures

Other relevant amendments proposed to the NPPF now include a warning against any developers trying to “game” the Biodiversity Net Gain system by clearing sites before the connected application is submitted.

Procedural changes

Changes of a procedural nature, which would affect all landowners, may follow after a further round of consultation on the new National Development Management Policies.  These centralised policies would contain planning considerations, which apply regularly in decision making – the first round of consultation would be on how the policies would work and then additional consultations would be carried out on each new policy.  The current wording in the NPPF in these policy areas would be the starting point for consultation and would be followed by consultations on each new policy itself.  The future NPPF would then be focused on the principles of plan making.

The proposals cover a wide range of topics and landowners are encouraged to read the consultation document and respond by 11.45 pm on 2 March.