What are heads of terms?
Heads of terms are a short written summary of the deal you have agreed in principle. They are usually not legally binding, apart from any agreed exclusivity or confidentiality terms, but they give both solicitors a clear brief and save time later. Typical items include:
- the price, or how it will be calculated, and when it is paid
- the route: outright purchase, subject-to-planning contract, option or joint venture
- any deposit or option fee
- conditions, such as planning permission or satisfactory surveys, and a longstop date
- any exclusivity period, during which you agree not to negotiate with other buyers
- overage, rights of access and any land you are keeping
- who pays which costs; on our option agreements we pay your reasonable legal costs, with a cap agreed in the heads of terms
Read them carefully. Although usually not binding, they set expectations that are hard to change later, so ask for anything important to you, such as completion timing or retained access, to be included now.
When should I instruct a solicitor?
As soon as you are serious about selling, and ideally before heads of terms are signed. Choose a solicitor experienced in development land rather than residential conveyancing alone, because options, overage and conditional contracts need specialist drafting. Your solicitor will check your identity, gather the title documents, answer the buyer's enquiries and advise you on the contract. Take separate planning and tax advice where you need it.
The solicitors will exchange a draft contract and replies to pre-contract enquiries. Answer promptly and accurately, because incorrect replies can give the buyer a claim later. If you are selling through a company, as trustees or as executors, your solicitor will also need evidence of who has authority to sign.
What checks will the buyer carry out?
Due diligence is the buyer's investigation of what it is buying. Expect checks along these lines:
| Check | What it covers |
|---|---|
| Title | Ownership, boundaries, rights of way, covenants, mortgages and other interests registered at HM Land Registry |
| Searches | Local authority, drainage and water, environmental and other searches relevant to the area |
| Planning | Planning history, policies, allocations and any existing permission and its conditions |
| Surveys | Topographical survey, ground investigation, ecology, trees, flood risk, utilities and highway access |
| Occupation | Tenancies, licences, farm scheme agreements and anyone else using the land |
Some ecology surveys can only be carried out at certain times of year, which can affect the timetable. The buyer will need access for surveyors and, sometimes, drilling rigs, so agree how much notice you need and how any damage will be made good. Expect follow-up questions as reports come back.
What should I prepare in advance?
- title documents, or the older deeds if the land is unregistered
- a plan of the land you are selling and anything you are keeping
- copies of tenancies, licences and farm scheme agreements
- any planning decisions, reports or surveys you already hold
- details of pipes, cables or other services crossing the land, and any wayleaves
- anything you know about drainage, flooding, contamination, access disputes or boundaries
- your mortgage lender's details, as the lender must release the land on completion
- details of everyone who must sign, such as joint owners, trustees or executors
Unregistered land, missing rights of access, probate and multiple owners are common causes of delay, so raise them early.
If you are selling only part of your land, think about the rights each side will need. The buyer may need access, drainage and services across land you keep, and you may need rights over the land you sell. Agreeing these early, and whether they should be paid for, avoids late renegotiation.
What happens at exchange of contracts?
Exchange is the point at which the contract becomes legally binding. On an unconditional sale, a completion date is fixed and the buyer usually pays a deposit. After exchange, neither side can simply walk away without consequences.
With a subject-to-planning (conditional) contract, you exchange now, but completion only happens if the condition, usually a satisfactory planning permission, is met by a longstop date. The contract will also set out what you can and cannot do with the land while the condition is pending, such as granting new tenancies. With an option agreement, you sign the option and the buyer decides later whether to buy.
What happens between signing and completion on a conditional deal?
On a subject-to-planning contract or option, the period after signing is when the buyer works on planning. A typical sequence is:
- the buyer prepares and submits the planning application, usually after consulting you on it
- the council consults neighbours and statutory bodies and negotiates planning obligations, such as affordable housing or contributions, often in a section 106 agreement that you may need to sign as owner
- a decision is issued, and the contract defines whether it counts as a satisfactory permission
- a short period for legal challenge usually passes before the condition is treated as met
- completion follows within a set period, or the buyer serves notice to exercise its option
The contract should say who pays for the application and any appeal, how far you must cooperate, and what happens if permission is refused or the longstop date passes. You usually keep using the land in the meantime, subject to the agreement's terms.
What happens on completion?
On completion, the buyer's solicitor sends the balance of the price, your solicitor repays any mortgage secured on the land and sends the rest to you, and the signed transfer is handed over. For part of a registered title this is usually HM Land Registry form TP1. The buyer then registers the transfer at HM Land Registry. Make sure keys, gate codes and access arrangements are handed over, and that anything you are keeping has been removed.
The buyer, not the seller, pays the land tax: Stamp Duty Land Tax in England, with the return and payment due within 14 days of the effective date, or Land Transaction Tax in Wales, due within 30 days. As the seller, you may have capital gains tax or other tax to pay, so speak to a tax adviser in good time.
How long does it take?
There is no standard timescale, and anyone who guarantees one is guessing. A straightforward unconditional sale with clean, registered title and prompt answers can move steadily, while title problems, tenancies, lender consent or several owners can add weeks or months.
Where the sale depends on planning, the application drives the timetable. England's statutory decision periods are 8 weeks for minor and 13 weeks for major applications, and Wales uses 8 weeks for standard applications, but extensions by agreement are common, and legal agreements or appeals take longer. Option agreements can run for years. You can help by replying quickly and telling your solicitor straight away about any change, such as a new tenancy or a dispute. See how it works for our process.
Questions
Are heads of terms legally binding?
Usually not, apart from any clauses the parties agree should bind them, such as exclusivity or confidentiality. Heads of terms record the commercial deal so the solicitors can draft the contract. Either side can normally still walk away until contracts are exchanged or an option agreement is signed, so read them carefully before signing.
Who pays the legal costs?
Normally each side pays its own, but it is negotiable and should be recorded in the heads of terms. On our option agreements, we pay the landowner's reasonable legal costs, with a cap agreed in heads of terms. There is never anything to pay us for a site appraisal.
Can the buyer pull out after exchange?
On an unconditional contract, a buyer who fails to complete is in breach and usually risks losing its deposit and facing a claim. A conditional contract can end if its conditions, such as planning permission, are not met by the longstop date. Your solicitor will explain exactly how your contract deals with this.
Do I pay stamp duty as the seller?
No. The buyer pays Stamp Duty Land Tax in England or Land Transaction Tax in Wales. As the seller, you may face capital gains tax, or income or corporation tax in some cases, depending on how you hold the land and your circumstances. Speak to a tax adviser before you agree terms.
Sources
- Stamp Duty Land Tax: online and paper returns (GOV.UK)
- Land Transaction Tax overview (GOV.WALES)
- Registered titles: part transfer (TP1) (HM Land Registry)
- Mortgage: release of part of the land for lenders (DS3) (HM Land Registry)
This guide is general information, not legal, planning or tax advice. Always take independent professional advice on your own circumstances.