Understanding land led deals: a registered provider’s perspective  Ricky Prota March 12, 2024

Understanding land led deals: a registered provider’s perspective 

Land led deals have been on the rise over the last few years. This approach to property development puts Registered Providers (RPs) in a position of strategic advantage and aligns projects with broader objectives of affordability and community development. In this article, we define what land led deals are, their significance for RPs, and some tips for mitigating the risks involved.  

What are Land Led Deals? 

A land led deal is when an RP acquires land in order to develop a new scheme. This may be achieved through working with a Local Authority or agent, or directly with a landowner. The primary focus is on creating affordable housing units, although these projects may include a mix of tenure types. This approach has been on the rise in recent years due to the stabilising of land values, and a greater focus on development outside cities.  

It’s important to point out the drawbacks of so-called ‘package deals’ that many RPs are facing. With this approach, RPs have less involvement with design and therefore, less control of the quality of the development. With package deals, developers often have more control from the outset; first, they look to quickly assess feasibility, focusing on quantity of units over quality; next, they will approach an RP to negotiate. Also note that the initial, rushed feasibility assessments are not often revisited.   

It’s also common that the developer will have more contact with architects in this process, minimising the influence an RP can have on the final outcome.  

This way of doing things counteracts many of the benefits that land led deals bring when RPs have a greater role from the start, perhaps acquiring the land themselves.  

Why do Registered Providers Use Land Led Deals?  

Putting aside the drawbacks of package deals, a well-executed land led deal can benefit RPs in many ways.  

Efficiency 

The typical tendering process can be long and painstaking. However, land-led developments are characterised by a collaborative approach that enhances efficiency.  

RPs, local authorities, and other stakeholders work together from the very beginning of the project – starting with the acquisition of the land; and collaboration can include joint decision-making on design, development, and management of the housing project. In addition, the contractor handles the technical aspects of the assessment, freeing up RPs to focus more on viability and planning.  

Each party brings their own expertise to the table which saves time, and the project benefits from their collective input. In contrast, the traditional tendering process is less collaborative; typically, the RP or contracting authority sets the requirements, and the contractors work independently to meet these specifications. There is less integration of various stakeholders in the planning and development phases. 

Control Over Development 

In land-led deals, RPs have greater control. They can influence the project right from its inception, tailoring the design, construction, and management of the housing units to meet specific needs and standards. This development process gives RPs control over what will be built, when, and by who, which allows for a more strategic approach that supports their mission.  

For example, they can more easily align developments with social objectives and local needs, including types of housing, amenities, and services, ensuring that developments cater to the community.   

However, with traditional tendering, once a contractor is chosen, the RP relies on that contractor to deliver the project as per the agreed terms, with limited involvement in the day-to-day development decisions. 

Cost-Effectiveness 

Land led deals can be much more profitable. Of course, the upfront cost of the land itself is expensive but purchasing it before planning permission is granted can lower the cost. In addition, there may be fewer bureaucratic hurdles compared to the typical tendering approach, which can reduce administrative expenses. 

Transparency 

There is a higher degree of transparency in land-led deals because of the involvement of various stakeholders throughout the process. This helps to ensure that community needs are addressed and that all parties have a clear understanding of the development goals and processes.  

Long-Term Perspective 

Land led deals often reflect a long-term perspective, focusing on sustainable development and ongoing management of the property, aligning with the objectives of the RP or the community. In addition, long-term partnerships may be formed that can benefit all parties – as well as communities – far into the future.  

Mitigating Risks in Land-Led Deals 

While land-led deals present significant opportunities, they also come with risks pertaining to cash flow, the potential for contractor insolvency, and third party rights for accessing the land. As well as the inherent risk sharing that comes with these partnerships, other strategies to consider are discussed below.  

Thorough Due Diligence  

Before acquiring land, RPs should conduct extensive due diligence to assess feasibility, potential risks, and legal implications. This includes evaluating the land’s suitability for development, understanding local planning regulations, and assessing environmental impacts. It’s also vital to inspect the site before purchase to check for possible third party rights that could affect development, such as footpaths.  

RPs also need to conduct thorough checks on the contractor to be certain they have the finances to complete the project. If they go bust mid-project (and social housing contractor shutdowns are becoming more common), RPs can find themselves in a difficult and costly situation, having to find a new contractor and put up with delays. 

Expert Financial Advice  

Seeking expert financial consultation on any development project is a must. This includes advice on land valuation which will help ensure that RPs are not inadvertently paying more than the market conditions warrant. And again, cash flow can be a challenge when land is acquired up front, so it requires thorough evaluation and forecasting.    

In Summary 

With a greater focus on developing housing outside cities, the UK has seen a rise in land led development. While traditional tendering remains a common approach, land-led deals offer a more collaborative, transparent, and RP-centric approach. This shift supports more integrated and community-focused development practices in the affordable housing sector.  

Risks to be aware of include package deals and contractor insolvency. Conducting thorough due diligence is key, as well as consulting with industry experts.  

Here at SDS, we help more than 300 RPs reach accurate financial viability decisions, fast. As well as ProVal, our viability software, we provide land valuation solutions and consultation services with industry experts. To enquire or book a demo, contact us today.  

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