The Financial Services Authority (FSA) have expressed concern about the rise in land banking schemes which are leaving investors out of pocket and in possession of land that has little or no chance of ever being built on.
Conveyancers involved in such deals need to consider carefully the manner in which these schemes are promoted and the potential for criminal property to arise.
What is land banking?
Promoters of land banking schemes purchase a large area of land, split the land into plots and offer the individual plots for sale to consumers.
Usually the schemes are promoted with the claim that there will be huge returns if planning permission is obtained for housing or other developments.
While in some cases these are legitimate investment opportunities, in other cases the land is located in a ‘green belt’ or is otherwise protected from development by planning law.
What is the problem?
The sale of land itself is not a regulated investment under the Financial Services and Markets Act 2000.
However, if the developer offers to handle the subsequent planning permission applications and find an ultimate buyer, the scheme becomes a collective investment scheme which must be authorised by the FSA.
If sales staff promoting the scheme make such representations to the potential investors, the scheme must be authorised by the FSA, even if the representations are contradicted in the actual written marketing material.
The promotion of an unauthorised collective investment scheme is a criminal offence.
Further, the FSA are concerned that promoters are also making fraudulent representations to potential investors in terms of the state of the planning permission process over the land, pre-existing interest from later purchasers, and who they are actually representing as part of the land banking scheme. This may give rise to offences under the Fraud Act 2006.
What should solicitors do?
If acting for promoters of such a scheme, the client needs to be clear about the legal parameters for promoting such a scheme, not merely for the promotional material but also in terms of what the actual sales team can and cannot say.
If acting for a purchaser, seek information about what the client was actually told during the sales discussions, check the veracity of claims made and whether the scheme requires FSA authorisation.
If you have concerns that a land banking scheme is operating outside the legal parameters you should consider reporting it to the FSA or other investigative authorities.
Further, if you have a suspicion that criminal property exists as a result of a possible offence related to the scheme, and you have relevant information that a person may be laundering that property, you should also consider making a report to the Serious Organised Crime Agency.