RPDT10320 - Key concepts: interest in land: licences that are not excluded interests - build licences giving a developer rights over the development

FA22/S36(3) is a provision ensuring that a developer holding certain licences, generally along with other contractual rights or understandings, is not treated as holding an excluded interest in land. It applies where any arrangements between the developer group and a landowner include provision for the developer to direct that the landowner will dispose of an interest in the land to a person who is going to purchase property that has been developed on the land.

A licence that does not include a condition with the particular effect described in FA22/S36(3), either directly or in conjunction with any other arrangements between the parties, will be an excluded interest in land, irrespective of the other terms in the licence and any associated arrangements.

Example of a Build licence that is not an excluded interest in land:

• Developer Ltd (D) enters into a build licence with Landowner (L) to develop and sell residential units on land owned by L.
• The terms of the build licence require D to construct the units. D also enters into a marketing agreement with L under which D must find third party purchasers for the residential units.
• The terms of the agreement require D to pay a fee to L upon entry into the build licence (which in value terms is similar to the open market value of the land).
• Under the build licence D is entitled to all of the revenue from the third-party sales, and L has an obligation to convey the land to the unit purchaser.

This type of arrangement is very different from the typical build licence referenced at 10310 above that would be an excluded interest in land. Arrangements like these, where a licence is granted for a sum that approximates to the value of the land to which it relates and includes terms, or is linked to other agreements between the parties, that deprive the landowner of rights over their land, are unlikely to be encountered in normal commercial circumstances.

Because these arrangements can require L to dispose of an interest in the land at the direction of the developer group, FA22/S36(3) treats D as holding an interest in land that is not an excluded interest. That interest is further treated as a disposal in the ordinary course of trade when the purchaser acquires an interest in the land from L. The provision in FA22/S36(3) is derived from a SDLT provision in FA04/S44A which was introduced to counter avoidance of SDLT using very similar arrangements. These sought to minimise or negate a tax charge that would arise on the transfer of legal ownership of land to a developer by ensuring that ownership passed directly from the landowner to a purchaser, whilst all the economic benefits of the developer’s actions in developing the land are passed to the developer. Although D never takes legal title to the land, it is in a similar position economically as if the deal with L were conducted by an outright purchase of land.

RPDT01100 contains a general introduction to RPDT and a list of abbreviations used.