Best mechanism for two neighbours doing one self build at the end of their gardens

[edsr]

My in laws are planning to do a self build in their garden. Their neighbour owns the corner plot and has existing access from the road to the end of their garden. The plan is to shorten both gardens and get planning for a bungalow, perhaps build it, or perhaps just sell the land.

 

I’m expecting that the neighbour will be a silent partner. They have no experience and are not in the best of health. My in laws have done similar projects in the past, and although they’ve done a conversion before, this will be their first new build, complicated by them only owning half the land. 
 

I was thinking a limited company, with neighbour as a silent partner would be best for this but wasn’t sure whether it would be over complicating things?

Edited December 29, 2021 by edsr
Clarifying the question

[ToughButterCup]

I read your headline: and decided to tell you not to buy a landrover ... like I did. 

[SteamyTea]

12 minutes ago, edsr said:

I was thinking a limited company, with neighbour as a silent partner would be best for this but wasn’t sure whether it would be over complicating things?

I think you get caught with unexpected employment law and taxes, i.e. you have to pay minimum wage.

Self builders are except from CIL, but companies are not.  Think the VAT is different as well.

[epsilonGreedy]

20 minutes ago, edsr said:

I was thinking a limited company, with neighbour as a silent partner would be best for this but wasn’t sure whether it would be over complicating things?

 

 

I wonder if the planning viability can be proven before expensive legal work. I think your Inlaws could apply for planning permission before the building plot is created as a legal entity.

 

Think it best if your in-laws buy the other half of the plot at market value to establish clear access rights with some "uplift" clause in the Deeds to reflect the other party's ongoing interest in the proceeds of the final sale. I don't really know what an uplift clause is but folks here use the term in this context. 

[edsr]

Thanks everyone, that was quick. I’ve changed the headline as it was a bit misleading! 
 

That’s a great shout @epsilonGreedy on the overage idea. Did wonder if making the planning costs taxable losses from any profit would be worthwhile though. 

[ProDave]

Only one party is building a house.  The simplest way would be for that party to buy the bit of garden from the neighbour and then just get on with it.  I would suggest a fair price to pay for the bit of garden is half the value of a building plot, and there would be no overage clause or anything.

 

Then the building family own the whole lot and take care of organising the build, CIL etc.

 

Do an outline PP application first and once that is granted, buy the land.

 

If you want to make it formal, make an offer to buy the land subject to PP being granted.

[saveasteading]

6 minutes ago, ProDave said:

half the value of a building plot, and there would be no overage clause or anything.

That sounds sensible. Uplift/overage clauses tend to be about future change of use from commercial to housing, or demolishing one unit and building several: unlikely to apply here.

But the clause will cost next to nothing to add, so don't fight it if suggested by the other party.

[nod]

I run a LTD company and would advise you to stay well away from forming a LTD company A simply written agreement would be easier and cheaper 

[Temp]

+1 to @ProDave 

 

4 hours ago, edsr said:

My in laws are planning to do a self build in their garden. Their neighbour owns the corner plot and has existing access from the road to the end of their garden. The plan is to shorten both gardens and get planning for a bungalow, perhaps build it, or perhaps just sell the land.

 

I’m expecting that the neighbour will be a silent partner. They have no experience and are not in the best of health. My in laws have done similar projects in the past, and although they’ve done a conversion before, this will be their first new build, complicated by them only owning half the land. 
 

I was thinking a limited company, with neighbour as a silent partner would be best for this but wasn’t sure whether it would be over complicating things?

 

I would recommend your in-laws just buy the land from the neighbour so he's not involved in anything else. Last thing you want is him changing his mind at some awkward point or dropping down dead and a beneficiary turning up and deciding he wants a bigger share of the profit or 101 other ways it could go pear shaped.

 

I think it would be hard to borrow any money needed with multiple parties involved.

 

 

Edited December 29, 2021 by Temp

[ProDave]

Worth also researching early on how you would get service connections. e.g. if the only sewer connection has to pass through part of the garden the neighbour was keeping. If so you would want a wayleave included in the sale to allow that.

[epsilonGreedy]

10 minutes ago, ProDave said:

Worth also researching early on how you would get service connections. e.g. if the only sewer connection has to pass through part of the garden the neighbour was keeping. If so you would want a wayleave included in the sale to allow that.

 

You are correct in advising that routing of services needs to be clarified upfront but a wayleave is not sufficient. Such rights need to be granted in property Deeds.

 

One reason I suggested a deal that gives the other neighbour an ongoing interest in the build is to ensure cooperation as the build hits problems for example when space is tight for materials or a skip needs to be unloaded onto the neighbour's drive. 

[edsr]

Thanks everyone, some great advice!
 

Based on this, and some other info that’s come to light, I think them offering to buy the land subject to planning, with an overage clause written into the purchase will be the cleanest mechanism, better for cash flow and minimises risk to both parties. 
 

The drainage/topographic survey is another good shout for due diligence checks as well as potentially a highways survey (although the road is pretty quiet the entrance would be near a junction and is on a hill). 

[Temp]

28 minutes ago, edsr said:

I think them offering to buy the land subject to planning, with an overage clause written into the purchase will be the cleanest mechanism, better for cash flow and minimises risk to both parties

 

Don't volunteer an overage clause. If you make an offer to purchase subject to getting planning permission you shouldn't need one. If you get planning permission you pay the agreed price. If  you don't get planning permission you don't buy it. When would an overage clause kick in? An overage clause might put off a future buyer who might want to build an extension should you ever need to sell up.

 

Is there is a risk the seller could pull out after you spend money getting planning perhaps? The answer to that is an "option to purchase contract". That gives you the right but not the obligation to buy atcan agree price for a fixed period of say 18 or 24 months. Long enough to get planning permission and appeal if necessary.