(See also the similarly titled, earlier post here.)

Since the FSA started to act against companies which had been offering collective investment schemes without proper authorisation, most land banking companies now clearly state in their published materials, both printed and on the web, that they do not offer collective investment schemes.

Check land bankers' literature and web sites for disclaimers regarding collective investment schemes, the Financial Services and Markets Act and, occasionally, abbreviations like FSMA.

According to the Financial Services and Markets Act 2000:

"Collective investment scheme" means any arrangements with respect to property of any description, including money, the purpose or effect of which is to enable persons taking part in the arrangements (whether by becoming owners of the property or any part of it or otherwise) to participate in or receive profits or income arising from the acquisition, holding, management or disposal of the property or sums paid out of such profits or income.

This is a broad definition and would clearly include traditional land banking scenarios where planning assistance was part of the service offered. However, in its press release following action against Actionjack (trading as English Land Partnerships), the Insolvency Service says:

[This was an unauthorised collective investment scheme] because individuals were investing in a plot of land in anticipation of planning permission being obtained on the site as a whole resulting in the value of their plot increasing.

The test here is solely whether investors are buying plots expecting just their own plot to increase in value or every other plot at the site.

Any reasonable person would expect any increase in value to apply to whole sites and not just to an individual plot and this could imply that any land banking scheme might be considered a collective investment scheme, regardless of whether any planning assistance is offered by the plot seller or any third party, and regardless of what the land banker says.

So, from the perspective of a plot purchaser, is collective investment such a bad thing?

In fact it is not. Correctly implemented and properly authorised, a land banking scheme which was also operated as a collective investment scheme would actually be a very good thing for investors for a number of reasons among which are:

• It would mean that a single entity had responsibility for maintenance of the site, its promotion through rezoning and planning permission and its onward sale to a developer. This would greatly enhance the likelihood of a profitable exit for investors.
  
  
• It would be protected under the Financial Services Compensation Scheme so that, should mis-selling be proved at some future point, compensation would be available to investors.

The question any prospective plot purchaser must ask is, why are so many land bankers so anxious to demonstrate that their schemes have none of these desirable characteristics? In other words, why do they not want to be regulated?

Be sure you have a satisfactory answer to this before parting with any money.


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