The big land con

Investors should beware the latest scam. Chris Partridge investigates the plots with no planning

Members of Parliament from all parties are pressing the government to outlaw so-called "land banks" that claim to offer investors fabulous profits from building on agricultural land.

Land-bank companies buy fields close to established towns for knock-down prices, and offer individual plots on the basis that planning permission will eventually be granted. However, many of the sites are in green-belt land, on flood plains, or in areas of beauty, and MPs are worried that planning authorities may be unable to resist unsuitable development if the law isn't tightened.

Greg Mullholland, the Lib Dem member for Leeds NW, became interested in the problem when a company called European Land Sales (ELS) started selling plots on a rural site in his constituency.

"ELS has been selling plots on a site at the edge of Cookridge for a couple of years now, but the council says it is still green belt and is going to stay that way," Mullholland says.

There is nothing to stop a land-bank company selling agricultural land as a future development, provided that they do not suggest that planning permission has been obtained or is likely to be obtained soon. The fear is that land-bank companies will make endless applications for permission over many years until the local authority caves in.

Investors who buy plots are also blissfully unaware how little the land-bank company would have paid for it. Plots of about a tenth of an acre are usually priced at an apparently reasonable £10,000 to £20,000, but with agricultural land selling at an average of £10,000 an acre, the land bank is already making at least a tenfold profit before the long, tedious and expensive process of obtaining planning permission has even begun. Critics believe that some land-bank companies have no intention of applying for planning permission at all, but will simply go into liquidation when the final plot is sold.

"It is a scam and is clearly a threat to green-belt land," Mullholland says. "My Ten-Minute Rule Bill aims to outlaw the practice by tightening up loopholes and strengthening legislation."

Mullholland's Bill will come up for a Second Reading at the end of May, but will almost certainly fail to get through, as private members' Bills rarely do.

Mark Lancaster, the Conservative MP for NE Milton Keynes, has joined the fight against land-bank companies. "I think it is a scam. At the least it is incredibly speculative," he says. "I don't like the way people are being misled and I don't like the terrible effect it has on local communities."

The arrival of a land-bank company in a rural area is usually a total shock. At Little Brickhill in Lancaster's constituency, a land-bank scheme was already half sold when the locals finally heard about it. Land-bank companies specifically ask their investors not to approach the local council about the prospects for development, ostensibly so they can present a united front later on. Critics believe that the real reason is so potential buyers do not discover the real position, and do not stir up protests.

"This was done at Little Brickhill a few years ago, but the area was not in the local-development plan and it has been made clear to the villagers that the development will not get permission," Lancaster says.

A company called Sinclair Deville has been offering building plots on a field next to the River Great Ouse at the tiny village of Chicheley, also in Lancaster's constituency, for the past six months at least, but last week none of the residents were aware of the scheme. It does not appear on the development plan for the area, Lancaster says, and is on the flood plain.

Land-bank operations may, paradoxically, sterilise the land against development. Once the land has been split into hundreds of plots, it becomes almost impossible to keep track of all the owners, over the many decades that planning applications can take to decide.