Since the FSA started to act against some land banking companies it suspected of operating unauthorised collective investments, many other land banking companies have publicly stated that they do not operate collective investments.

If this is so, what are they actually selling and where does this leave the investor?

Typical land banking offer before FSA intervention

You and other investors bought plots of land from a company which retained a portion of the site for itself and engaged planning professionals to push the entire site through relevant review processes and achieve a change of designation. Following this, the company would then negotiate the sale of the entire site to a developer and individual plot owners would take a substantial profit, less whatever portion of it was subject to the clawback clause in their contract with the land banker.

Given the general presumption against planning permission on green belt sites this was never a likely outcome, but it was a collective investment subject to FSA authorisation.

FSA guidance on land investment schemes now includes:

Q20. I run a business arranging for the sale of individual plots of development land to investors who are also required to use my services in obtaining planning permission for or disposing of the land as a whole (or both). Might I need to be authorised?

Yes, this is likely to be the case. This will be because the role you have in obtaining planning permission or in negotiating and effecting the sale of the land (or both) may mean that you are operating a collective investment scheme (see Q4). The purpose or effect of the arrangements would appear to be to enable investors, as owners of parts of the land, to receive profits arising from your services in obtaining planning permission or arranging disposal in respect of the land as a whole. If the planning or disposal process is such that individual investors do not have day-to-day control over it, the arrangements are likely to amount to a collective investment scheme, and to operate it you would need to be authorised or exempt. The restrictions on financial promotions referred to in Q18 would also need to be considered.

As a result of this, the FSA and DTI are currently acting against a number of land banking companies suspected of operating collective investment schemes without FSA authorisation and this has led to a change of emphasis by many land bankers.

Typical land banking offer after FSA intervention

You and other investors now buy plots of land from a company and wait.

The general presumption against planning permission on green belt sites remains and now you need the resources to lobby for a change of designation alone.

So, did you or did you not buy a collective investment?

If you bought land from a land banking company before about March this year, you may have bought a collective investment even if the land banker who sold you the land has since changed his policy. If you bought more recently, you may still have bought a collective investment as implementing a land banking scheme in a manner unambiguously compliant with FSA requirements is far from straightforward and it is probable that some land bankers still fail to comply.

In either case, we'd love to hear from you.

• What representations were made to you during the sales process about how the site would be promoted through the planning process?
  
  
• Is there a clawback provision in your purchase contract?
  
  
• Were there any other factors in your purchase which gave you reason to believe you were buying more than just a plot of land?

If you want to share your experience please leave a comment below or, if you prefer anonymity, drop us an email at the address on the left.