If you’re offered the chance to invest in land in the hope that it will get planning permission and you’ll make a profit – think twice. The chances are that it’s a scam and you’ll lose your money. And you could lose a lot of money.
How do these schemes work?
You’re normally called out of the blue by someone who may have got your details because you own shares or other investments. The tell tale signs that you’re being contacted by a land banking scam company are:
– You’re promised sky high returns. Often salesmen and women promise that returns of several hundred per cent. Sometimes you’re told you can get a quick return.
SAVVY TIP: On its website the Financial Conduct Authority, the FCA, has information about land banking schemes points out that not all land banking schemes are scams as some are authorised, but it’s certainly true that many people have been sold plots of land that have little or no hope of getting planning permission.
– You’re put under a lot of pressure. Most sales people will encourage you to buy, but some agents working for land banking companies can be very aggressive indeed.
What do they promise?
Many land banking firms promise returns of 200% or more and often imply that they can get planning permission for the plot(s) you buy. However, the reality is often very different.
– It’s crucial that you examine the contract carefully. What the salesperson says to you face to face or over the phone is far less important than what’s written down in the legally binding contract — especially if you have a complaint.
– Don’t assume the company will be around for the long term. Even if you’re happy with the contract, there’s a chance the land banking company could be shut down by the regulator (it’s already shut down over 10 land banking companies) or may simply disappear.
Before you invest
If you’re considering investing in a plot of land that hasn’t got planning permission, there’s a reasonable chance that — not only will you not get the returns you’ve been promised — but you may lose money as well. Always:
– Get in touch with the relevant local authority. Contact the council’s planning department. They won’t be able to tell you whether or not the particular field/site is going to get planning permission but they can give you an idea of how likely it is. You can find your local planning authority via the government’s Planning Portal website.
SAVVY TIP: Some ‘investment plots’ have been sold that have restrictions on developments so that sheds and outbuildings can’t be erected, never mind houses. Others have been in areas of outstanding natural beauty — again not obvious contenders for planning permission.
– Check the FCA register. If a company is registered with the FCA, that means that it has to abide by the its rules and regulations and that you’d be eligible to complain to the Financial Ombudsman Service if — for example – you lost money and weren’t happy with the company’s response.
SAVVY TIP: The FCA says that some companies are mimicking those that are on its official register. It recommends checking its website’s unauthorised firms list to see if you’re dealing with a company it’s warning about.
– Pay your deposit by credit card. If you pay your deposit by credit card you may be able to make a claim against the credit card company for breach of contract or misrepresentation, but be aware that it’s not as easy to prove as you might think. ‘Misrepresentation’ can be something of a grey area.
SAVVY TIP: Section 75 of the Consumer Credit Act means that, if the goods or services you’ve paid for — or put a deposit towards — don’t arrive or aren’t as specified, you may be able to make a claim against the credit card provider for a refund of the full amount (as long as the cost was £100-£30,000). However, it doesn’t guarantee that you’ll get your money back if you bought a plot of land that doesn’t then get planning permission.
What you can do if you’ve lost money
The FCA says that anyone who’s lost money should get in touch so the regulator can investigate the company and — if necessary — close it down. The easiest way is to telephone its consumer helpline on 0800 111 6768.
– Don’t invest more money. Some land banking firms ring people who have lost or are on the point of losing money, offering to buy their land — for an upfront fee. The regulatorsays that this ‘recovery room’ tactic is part of the scam.
– Make a claim against your credit card company. I know that some people have managed to get the full plot price back from their credit card provider under section 75 of the Consumer Credit Act, because they’ve paid the deposit by credit card. However, as I’ve pointed out above, you’re not guaranteed to get your money back.
The government’s GOV.UK website has a useful guide to protecing against property fraud including information about land banking schemes.
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