How is such incompetence possible?

 This Land Ltd loses £500,000 on a property purchased for £350,000

By Andrew Rowson

The story of 34a Station Road, March may shed some light on how Cambridgeshire County Council's wholly-owned housebuilding company has managed to lose £63.9 million in its first nine years of operation.  

In April 2018, This Land Ltd (TLL) purchased 34a Station Road, March as part of a £38.3 million portfolio of properties previously owned by Cambridgeshire County Council (CCC).  The substantial building is a former education centre, located on the same site as the March Community Centre (No. 34).  No. 34a was unused in 2018, with boarded up windows, and ripe for development in the centre of March.

As with all TLL's properties, it was purchased with a 100% mortgage loan from CCC.  The legal mortgage is filed at Companies House under This Land Development Ltd, with charge reference 0008.

Although the mortgage document is signed by both parties (CCC and TLL), the mortgage value, and hence the purchase price, is omitted.  It is not clear what effect that omission may have on the mortgage contract's validity.

To establish the purchase price one needs to obtain the historical title document from the Land Registry.  TLL paid CCC £350,000 for it on 13th April 2018.  

TLL did nothing with the property for sixteen months.  On 23rd August 2019 it submitted a planning application to Fenland District Council for a change of use to nine residential dwellings comprising one two-storey house, four 2-bed and four 1-bed flats.

Fenland District Council granted TLL planning permission on 4th February 2020, with the standard condition that development work had to begin within three years of the decision notice - i.e. by 4th February 2023.  This Land then had the option of developing the site itself, or selling it to a developer, with planning permission, which should have substantially enhanced its value.

The expectation was that This Land would develop the building, since that is what CCC set it up to do.  Here is an extract from the "Outline business case" put before CCC's Commercial and Investment Committee on 27th May 2016 for establishing a company "as a housing development vehicle (HDV) for property development":

"In view of CCC land holdings, and the currently extremely buoyant economic conditions for housing development, there is an opportunity for CCC to develop its own land rather than sell it. Simply selling sites for others to develop, and profit from, is no longer an option for CCC. The scale of the financial challenges facing CCC requires that it has to review every opportunity available to it in order to create an on-going revenue stream that can mitigate the reduction in the services that it otherwise would have to make.

 The vision is to transform CCC from being a seller of sites to being a developer of sites. CCC is therefore developing, and delivering, a series of principally residential development projects from its property portfolio across Cambridgeshire, planned over an initial 10-year timescale."

For whatever reason, TLL did not develop 34a Station Road, but waited a further three years and nine months before selling it to Gas Tech Utilities Ltd on 27th November 2023 - without planning permission - for £251,000 + VAT.  The sale price was £99,000 (28%) less than TLL had paid for it five and a half years earlier.

Only This Land can explain why it squandered the opportunity of developing or selling the property within the three year planning permission window.  In so doing, it wasted time and the fees charged for the planning application.

The new owner, a director of March-based Gas Tech Utilities Ltd, submitted an all but identical planning application on 9th January 2024.  It was granted on 19th September 2024.  The new application used the same agent as TLL, and the 2024 application was for the same conversion to nine residential dwellings.  The Land Registry currently shows five of the nine new residences on its website: 1, 2, 5, 6 and 7 Grammar House, 34a Station Road, March.  No onward sales have yet been recorded.  That could be because the properties may have been let.  The purchaser is also a director of a property lettings company with the same March address as Gas Tech Utilities Ltd.

Why was the November 2023 sale price so much lower than the £350,000 TLL paid in April 2018?  One possibility is that it had been grossly over-valued by CCC's valuer Savills in 2018.  Another  is that property prices in March slumped over those five years.  That appears not to be the case, according to Nationwide's house price index calculator.  Property prices in March and East Anglia rose by 21% over that period, and by 27% between April 2018 and November 2022.  The sale price to Gas Tech Utilities Ltd in November 2024 was 41% below Nationwide's estimated market value.

A third possibility is that This Land, which has been chronically short of cash since incorporation, was squeezed by developers (who would have been aware of the company's cashflow crisis) into disposing of the property at much lower than market value.

So how much did This Land lose overall on this investment?  The relevant components are the purchase and sale prices, TLL's loan interest payable to CCC (around 7.1%), the planning application fees and associated costs, business rates, and the time value of money (cost of capital). 

If one estimates planning application costs of £60,000 in 2020 and applies a 3% cost of capital (close to the average house price increases over the same period), the discounted cash flows produce a net present value of minus £497,686 for the project in 2024 terms.

Future blog posts will feature other properties bought and sold by This Land Ltd.