It is well-known that there is a housing emergency throughout the UK. The number of new build properties, including affordable homes, has not kept pace with the demand for housing. Rachel Reeves in her first speech as Chancellor said that Labour will “accelerate stalled housing sites” and “planned to build 1.5 million homes in England over the course of parliament”.
The Scottish Government’s target is to build 110,000 affordable homes by 2032 with some local authorities including Argyll & Bute, Glasgow and Edinburgh declaring housing emergencies.
Scottish Land Commission
In 2021, the Scottish Land Commission (“SLC”) reported in “Land for Housing: Towards a Public Interest led Approach to Development” that one of the reasons for the housing crisis is “how land is brought forward and made ready for development………the decisions about what to build and where to build tend not to be driven by public interest”. The SLC made five proposals for change. One of those proposals, “a new transparency obligation that would require option contracts and conditional contracts over land to be disclosed in a public register”. Housebuilders often land bank acquiring land for housebuilding through option agreements. Some commentators believe land banking pushes up prices contributing to the housing shortage!
In England option agreements can be registered by notice in the Land Registry. In Scotland, option agreements are not registered in the Land Register. But should there be a legal obligation in Scotland on landowners to register option agreements and conditional contracts on land that they own?
Those “For” registration of Option Agreements
Those in favour of registration agree that there should be clear, easily searchable online information in a public register on sites earmarked for housing subject to options. Communities would be aware of development plans earlier. The SLC states that when communities are engaged early on in development proposals, there are better outcomes. The relations between developers and local communities improve with support secured for the development proposals. Communities have a right to be informed of the way the land in their area is being used. Transparency is a democratic principle!
The SLC declared that transparency would assist in preparation of the Local Development Plans. Transparency, promotes accountability, good governance which is beneficial to the large housing projects impacting local communities, and ensures that land is used efficiency for housing. This is a win-win situation! Local communities have pointed to Community Right to Buy saying that there have been times when they have attempted to buy a piece of land only to discover that the land is under an option late in the process. This would not happen where option agreements were publicly visible.
Those “Against” registration of Option Agreements
Those opposing registration including housebuilders and developers, argue registration would mean the loss of commercial confidentiality around their business strategies. Registration could supress or delay development which would defeat its purpose. Some developers suggest that if registration is required it may dissuade them from agreeing options! The bureaucratic planning regime already means that it can be years between the signing of the option agreement and the exercise of the right under the option! Jason Honeyman Chief Executive of Bellway said, “the challenges with the planning system have acted as a significant barrier to our sector”. This will not be helped if local communities have knowledge of options early in the development process. Developers fear higher costs, competition and objections from locals resulting in delays in new homes.
Developers say that there is transparency already. They point to the presence of a standard security on the Land Register. This MAY be an indication that an option agreement is in place. This is supported by the developers stating that if a company has the benefit of the standard security from the Land Register, it MAY be possible to look at the company accounts which MAY disclose the option as an asset. But this would involve some investigation! The Register of Persons Holding a Controlled Interest in Land MAY cover some option agreements. But this would depend on the nature of the landowner and terms of the option agreement! Market knowledge MAY assist in identifying option agreements. But for those in the industry!
What information should be disclosed in registration?
If option agreements are to be registered what level of detail will be required. Should it simply be the location of the site optioned for future development with a plan showing the optioned site? Will it be necessary to disclose the option period along with contact details for the party holding the option? How significant is the option payment/purchase price or the mechanism for calculating the purchase price when the option is exercised? What are the consequences for those landowners/developers failing to register? The SLC believe it would be difficult for registration to be retrospective!
Key to easing the housing crisis?
Before the introduction of any mandatory registration system for option agreements and conditional missives there must be full scale consultation. Developers and local communities need to engage in the process. While registration of option agreements may assist the current housing crisis by identifying land available/unavailable for housing projects, this is not the key to the housing shortage. It is part of a larger strategy. We are on a long road!
Marie Canning is a Professional Support Lawyer in the Commercial Property team. Should you need any advice on Option Agreements or Conditional Missives please contact any member of our Commercial Property team.
