Beware of land banking schemes

Land banking schemes are where a company sells a plot of land with the promised potential that if planning permission is later granted on it, it will soar in value.

But it's often the case that the land sold by land banking schemes is protected – as a green belt, conservation area or similar – meaning that planning permission is unlikely to ever be granted.

The result is that UK investors have lost an estimated £200 million, according to the Financial Conduct Authority (FCA).

Typically, a company has ownership of a large piece of land, which it then divides into smaller individual plots for sale to investors. Because the land is undeveloped, and may not have planning permission, the returns could be huge. However, the sting in the tail is that the land is protected – usually by being green belt or a conservation area – and therefore it is highly unlikely that planning permission to develop the land will ever be given.

Often, first contact from a land banking company comes via a cold call, but it could also be via an email or letter. The lure of the lucrative promised returns can sound too good to be true and, sadly, in a lot of instances they are.

It's also increasingly the case that overseas investors have been duped into land banking schemes with companies situated away from UK regulatory bodies in places like Dubai and Singapore.

Obviously those most at risk are those who have the money to invest in a land banking scheme (you'd be unlikely to get a mortgage to finance this sort of purchase). The following groups are particularly at risk:

• Shareholders. Most land banking schemes choose to cold call investors using phone numbers taken from shareholder lists (this information is publicly available).
• Expatriates or foreign nationals. Land banking schemes can use lack of knowledge about UK planning law to get investment from overseas.

Most land banking companies appear very professional, with well-written and in-depth promotional literature, and sales staff able to answer any question you might have.

However, having the "gift of the gab" doesn't necessarily mean that all the information is truthful, so:

• Don't believe the salesperson or company's assurances that the land will be granted planning permission.
• Don't be pressured into making quick decisions.
• Seek independent advice from a solicitor and a chartered surveyor. Any "independent" recommendation by the land banking company may not be truly independent, so find your own advisers (see useful contacts at the bottom of this article).
• Do your own research with the local planning authority to see if the land in question is ever likely to be granted planning permission.
• Report suspicious companies to The Insolvency Service on 0300 678 0017 or by emailing Intelligence.live@insolvency.gsi.gov.uk. The Insolvency Service may be able to wind up a rogue land banking scheme. 

Land banking investment schemes may be regulated by the Financial Conduct Authority (FCA) if it is a collective investment scheme. You can check whether the firm is authorised by the FCA by calling them on 0800 111 6768.

Failing that, it is possible that The Insolvency Service (part of the Department for Business, Innovation and Skills) could act against a land banking company if you have been misled over the investment you have made. 

Contact details for these regulatory bodies can be found below.

Useful contacts

You can find out more information about land banking schemes in these help sheets from the Financial Conduct Authority and Land Registry.