Land Banking 'Scams'

Updated: 24th November 2011

The Insolvency Service has warned that land banking scams are on the increase. Since 2007 Company Investigations, part of The Insolvency Service, has closed down 49 land banking companies in England and Wales that have collectively caused the public to lose over £30m.

The practice of lawful land banking (retaining land for potential future development) by big property developers is actually quite common - many of the well known national firms do it [quietly] on a regular basis...  It is this practice that keeps an iron in the fire for future development and maintains a healthy investment portfolio (land, like gold, is one of the more reliable investments to hold in a recession).

Land banking 'scams' are not however operated by the well known 'corporate developers' but typically by flashy car driving, expensive watch wearing "business men" with dubious websites, PO Box office addresses and limited (if any) publicised trading history...

Development Land

The common scamming process involves acquiring a plot of land 'for development' which is immediately sub-divided (on paper at least) into a number of smaller plots which are then marketed for sale to the uninitiated investing public (land often sold under the pretext that planning permission will be granted for development 'at some time' in the future).

The Insolvency Service has seen a 33 per cent increase in the number of complaints it has received (2009-2011) against companies involved in these scams and a 100 per cent increase over two years in the number of complaints about land banking scams accepted for investigation.

Since 2009, 39 companies have been wound up that caused losses of £13.4m. To date, nine directors of land banking companies have been disqualified by The Insolvency Service for a total of 86 years. It is estimated that total losses from all land banking scams exceed £200m nationwide.

Land banking scams first emerged in the UK several years ago (having jumped on the band wagon when a few similar scheme successfully gained massive investment returns), but in the last three years, The Insolvency Service has witnessed an increasing amount of activity in this area and an increase in the number of complaints it has accepted for investigation.

The service said seven cases were accepted for investigation in 2009; this rose to 11 cases in 2010 and 16 cases to date this year (2011).

Robert Burns, head of investigations at The Insolvency Service, said: "The public needs to be aware that land sold in these schemes is nearly always sold without planning permission and promises that planning is likely to be granted, is a tell-tale warning signal. A check with the local council planning office (LPA) should provide a quick answer on the prospects of planning permission.

However, Ian Firth - MD at Keith Farmer Associates - adds: "While there may be a great number of phoney 'development companies' out there preying on naive investors, there are some genuine investment opportunities that have some milage in them - that said, any buyer in this field [excuse the pun] will realistically have to treat an investment as a gamble and with a long-run in mind"  

"As with any opportunity to purchase property we would observe that this type of acquisition is a transaction between a willing buyer and a [very] willing seller... And it is down to both sides to ensure that they are happy with the deal;  It is quite true though that misleading and false representations (the Property Misdescriptions Act applies of course) by rogue traders might influence less prepared or poorly represented buyers – particularly if suggesting that the deal on the table is more valuable than it really is."

"Research into local planning policy and contact with the local planning authority is of course advisable... Before the baby is thrown out with the bath water it is worth noting that there is (for the time being) a blanket prescription that all LPA's operate with a "general presumption against development" and so any planning question posed to an LPA will receive a negative response by default..."

"The best advice that we can offer to anyone considering taking up an offer of investment in a land scheme is to make contact with an experienced 'MRICS' Chartered Surveyor (preferably with a planning and development interest).  Instruct the surveyor to advise on the prospects available and take his / her advice;  9 occasions in 10 would, I predict, result in a negative response (i.e. Don't touch it), however there are some diamonds in the rough hidden amongst the boulders"


Article adapted from an original piece by Roger Milne - Planning Portal

Original Article Here


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