Sale of house and commercial land

How to split proceeds

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A client has a house and commerical land which are situated on the same site. He has lived in the house for many years and has recently been approached by a developer to purchase the house and land on the basis that they intend on demolishing the house and building 25 residential units on the whole plot. 

The client will receive a healthy amount for the plot but the amount paid is just an overall total without any split between the house and yard. The value is more than they would have ordinarly received due to the development potential. 

My client has lived in the residential property throughout the ownership period. He is obviously hoping for as much of the proceeds to be allocated to the house as it will qualify for PPR. 

My question is how are you expected to apportion the proceeds between the house and the yard? There are large parts of the yard which are unable to be built on and therefore apportioning the whole site on a square footage basis seems unfair but not sure of other options... 

Replies (6)

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By The Dullard
12th Apr 2022 13:55

It needs to be split on a just and reasonable basis.

Get a valuation. If 90% of the value is for the residential part, then it reasonably follows that 90% of the proceeds are for the residential part.

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By ireallyshouldknowthisbut
12th Apr 2022 15:33

As above valuations are key.

Also consider if there has been a trade carried out on the commercial land with the attendant relief.....

Finally look out for any sales related tranches. Often these deals will be "payment 1 upfront + payment 2 % of sales value 12 months after construction". Payment 2 may of course be recorded on a completely separate sales document and the client overlook mentioning it to you...

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By Jigs
12th Apr 2022 16:23

Great, thank you both.

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By 356B
12th Apr 2022 19:54

As it's 25 houses, you have to consider whether the land attaching to the house is over half a hectare, and can it be justified as appropriate to the dwelling.

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Replying to 356B:
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By DKB-Sheffield
12th Apr 2022 21:24

It'd be a struggle to get planning permission for 25 dwellings (detached, semi, terrace - as opposed to flats) near me on a land area of much less than 3 acres.

Not sure of the relevance though. I'm certain the OP has stated the land-only element is 'commercial land'. I may have jumped the gun, and guessed too much but, I had assumed we were not considering 'house and grounds'?

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Replying to DKB-Sheffield:
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By 356B
13th Apr 2022 09:41

It's sometimes very difficult to determine where the boundary is between uses. Unless the commercial land is clearly delineated ( and separate) there's always a chance of increasing the PPR ppn.

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