23 June 2009

Uplift clause and effect.......

Regular readers of Muck&Brass have asked for an explanation of an 'uplift clause', mentioned in a previous blog.

Imagine you owned a piece of land and you knew that it had development potential but you didn't want to undertake the development yourself. So you put the land up for sale and receive a variety of offers. Those offers reflect the value of the land 'as it is' and both parties know that there is additional value in the land were it to receive a beneficial planning consent.

To make sure that you, the vendor, can receive a share of that future value, you insert an 'uplift' or a 'claw-back' clause into the sale agreement. This means that if, within a defined period (say 25 years from the point of sale) the purchaser obtains a beneficial planning consent ie gains consent for development or increases the density of an existing consent, then you, the vendor, will share in that 'uplift' in value.

So, take the example of the Etsome Terrace site. When Somerton Town Council sold the land to Edgar Homes the land had planning consent for 13 houses so the value was predicated by that level of density of development. If Edgar Homes decided, at a later date, to increase the density of development through a new planning application, say to 28 houses, that would effectively double the value of the land. Sadly for the community of Somerton, because Somerton Town Council failed to insert an 'uplift' clause into the sale contract, were Edgar Homes to seek increased density on the site, Somerton will not benefit.

It is worth noting that when, in 2001, Somerset County Council undertook a valuation exercise prior to their disposal of the site, SSDC Planning Department indicated that they would like to see 30+ homes on the site. So there is very real reason to propose that Edgar Homes will seek to increase the density on the site.

It is therefore fair to describe the failure to include an 'uplift' clause as a potentially huge and costly blunder on the part of Somerton Town Council and on the part of those individuals who negotiated the sale agreement. (As Muck&Brass understands, it was Cllrs Keenan and Canvin who were involved in the 'Heads of Terms' negotiations.) Viewed from the other side, Muck&Brass is quite certain that Edgar Homes are 'uplifted' by the situation.

Till next time, when Muck&Brass will look at 'conflict of interest', may your God go with you.