Real Estate Blog: Pretty flipping good: our top tips for sub-sales of land

We are often asked about the best way to structure a sub-sale, usually on development transactions. If done correctly, it can bring a wide range of benefits (no stamp duty land tax, avoiding self-funding and hopefully providing a tidy profit). However, it can be a difficult business, so please read our top tips on avoiding common pitfalls and to see how sub-selling could be beneficial for you. 

1. Keeping things moving - with three clients and three sets of solicitors, delays can creep in, so responsiveness and hitting key milestones are crucial. The end buyer also needs sufficient time to carry out their due diligence, including receiving searches and raising enquiries.
2. Contractual obligations - the intermediary needs to ensure the obligations in the head contract are properly back-to-backed with the sub-sale contract. Most of our sub-sales are ‘subject to planning’, sometimes with additional conditionality, so the conditions need to be exactly mirrored (by reference is the best method) so that the person in the middle is not left ‘holding the baby’. If the sub-sale also has a linked building contract (such as a JCT contract), care needs to be given as to how this can be secured, particularly if the details can’t be 100% confirmed until planning is obtained.
3. Substantial performance - the intermediary needs to ensure the head contract isn’t unintentionally ‘substantially performed’ (by starting works on site prior to completion), which would result in SDLT sub-sale relief being voided.
4. Completion - the intermediary needs to be certain there is no possibility of being in a position where they are contractually obliged to complete on the purchase, but the end buyer isn’t.
5. Confidentiality - if the head seller is not aware of the sub-sale, care needs to be taken to avoid disclosure until after exchange. However, with most development transactions, the parties will be aware of the structure, as the intermediary is usually responsible for obtaining planning (and may be the main contractor), so this isn’t always an issue. Sometimes a degree of trust based on longstanding relationships is required.

 The Residential Development team at Freeths has extensive experience of dealing with sub-sales for sellers, intermediaries and end buyers. Please get in touch for more information on how we can help you.