How a garden-plot joint venture works

What is a garden-plot joint venture?

A garden-plot joint venture is an agreement where you contribute the land and a partner contributes the money, skills and management needed to get planning and build, with the result shared between you. You keep your house; the plot behind or beside it becomes the joint project.

The appeal is that you share in the value of the finished homes rather than taking a land price based on someone else’s view of the risk. The trade-off is that you also share in the risk: if costs rise, sales are slow or planning takes longer, your return can fall or arrive later.

How is a joint venture different from selling the plot?

A joint venture differs from a sale because you do not take a fixed price and walk away; your return depends on how the project performs. In a sale, the buyer takes all the upside and all the risk after completion.

That makes a joint venture a better fit for owners who are not in a hurry for money, are comfortable with some uncertainty, and want to stay involved in decisions about what is built next to their home. Owners who want certainty and a clean break are usually better served by a sale, with or without planning.

What structures do garden-plot joint ventures use?

Garden-plot joint ventures generally use one of four structures, and the right one depends on the size of the scheme, who funds it, and how you want to be paid.

• Contractual joint venture: you keep ownership of the land while the partner obtains planning and builds under a development agreement, and the sale proceeds are split by an agreed formula.
• Deferred price: you sell the plot at a base price, with further payments from the sale of the finished homes, secured on the land.
• Joint company: the land and funding go into a new company, often a limited company or limited liability partnership, and each party owns a share.
• Homes for land: you transfer the land and receive one or more finished homes, or a new home is built for you on part of the plot, instead of cash.

How does homes for land work on a garden plot?

Homes for land means you give the land in exchange for a completed home or homes rather than money. On a single garden plot, that usually means the new home is built for you on part of your land, while the partner is paid by selling another home on the rest, or by being paid for the build.

It works best where the plot can take more than one home, such as a very large garden or several neighbouring gardens combined. On a plot big enough for only one modest home, there is little left to pay the partner, so a straight sale or a design-and-build contract is often more sensible.

For example, two neighbours with long gardens might combine their land so a shared access serves three new homes. Under a homes-for-land agreement, each neighbour could take one finished home, perhaps to let or to house a family member, while the partner sells the third home to cover its costs and return. The contract would set out exactly which home each person receives, its specification and the date for handover.

Who does what in a garden-plot joint venture?

In a typical garden-plot joint venture the landowner provides the land and approves key decisions, and the partner manages and funds everything else. A clear split avoids disputes later.

The partner usually commissions the surveys and design, prepares and submits the planning application, arranges building control and a structural warranty for the new homes, manages construction and sells the finished homes. The landowner usually provides access to the land, signs the documents needed for planning and the title, and approves the design, the budget and the sale prices within agreed limits.

What protections does a landowner need?

A landowner needs protections that secure the land, control what is built and make sure the money flows as agreed. These should be set out in heads of terms and then in the legal documents, with your own solicitor acting for you.

• Security on the land: if you transfer the land before you are paid, secure your share with a legal charge or a restriction on the title.
• Design approval: the right to approve the planning application and any material change to the scheme.
• Budget and reporting: regular cost reports, a cap on what can be spent before you are consulted, and access to the accounts.
• Long-stop dates: if planning or building is not achieved by agreed dates, the agreement ends and the land comes back to you on clear terms.
• Cost overruns: clarity that the partner bears them, or how they are shared.
• Insurance and warranty: proof of site insurance, building control sign-off and a structural warranty for buyers’ lenders.
• Dispute resolution: an agreed route, such as an independent expert, for disagreements over valuations or decisions.

Why does securing your share on the title matter?

It matters because a promise to pay you a share of the proceeds is only as good as the partner’s ability to pay. If the land has left your name and the partner runs into trouble, an unsecured promise can leave you as just another creditor.

HM Land Registry guidance notes that a purely contractual arrangement to pay someone a share of the proceeds of sale does not create a proprietary interest and cannot be protected by a notice on the register. That is why solicitors usually secure a landowner’s share with a legal charge or a restriction, or keep the land in the landowner’s name until payment.

Development finance adds a complication. A lender funding the build will usually want a first charge over the land, ranking ahead of you. If that is part of the deal, your solicitor should negotiate how the lender’s charge and your share fit together.

What are the exit routes from a joint venture?

Exit routes are the agreed ways the joint venture ends, and a good agreement sets them out for success, delay and failure alike. Thinking about exits at the start is the best protection you have.

• Sale of the finished homes, with proceeds paid out in the agreed order and shares.
• Sale of the plot with planning, if both parties decide not to build, with the proceeds shared.
• One party buying the other out at an independently assessed value.
• Retaining and letting a finished home, with a later sale or refinance.
• Termination at the long-stop date if planning is refused, with the land returned and costs dealt with as agreed.

How is a joint venture taxed?

Tax depends on the structure and the facts, so take advice from a tax adviser before you sign. Sharing in development profit can be treated differently from a simple sale of part of your garden.

HMRC’s guidance on Private Residence Relief says land that has been fenced or divided off from your garden for development, or has been developed, may not qualify for relief. Developing and selling yourself, or through a joint venture, can change the tax position, and Capital Gains Tax, Stamp Duty Land Tax or Land Transaction Tax, and VAT can all arise depending on how the deal is structured. A tax adviser should review the heads of terms before they are agreed.

Is a joint venture right for your garden?

A joint venture is right for your garden if the plot is big enough to support the partner’s costs and return as well as your share, you are prepared to wait and share some risk, and you want a say in what is built. It is usually the wrong choice if you need money soon or want a clean break.

We are a new brand within the S&K Group, and joint ventures are one of the routes we offer alongside outright purchase, sales subject to planning, options and design and build. A free garden plot appraisal, with no cost and no obligation, will show whether your plot can support a joint venture and how it compares with a sale.