William Flew on Scams
April 11, 2011 § Leave a comment
Don’t fall prey to land banks property scam
Consumer affairs Investors are being persuaded to hand over thousands for plots that turn out to be worthless. William Flew investigates
d‘ It’s ifficult to prosecute companies such as these because they are clever at covering their backs
The land bankers’ phone calls are persuasive, promising that you can more than double your money in a few years by investing in a strip of land that is earmarked for development. You feel nervous at first but start to think that this is an opportunity you cannot miss. However, a growing number of consumers are being left tens of thousands of pounds out of pocket by companies pushing land that ends up worthless.
Investors are generally targeted by land banking companies through highpressure cold calls, but also mailshots and websites or at exhibition stands.
The strips of land that they offer are usually in areas with high house prices and close to land that has been allocated for development, and they promise returns of more than 100 per cent.
In reality these plots have very little or no development potential because they are unlikely to ever be granted planning permission.
Once this is discovered, the chances of getting any money back is slim. A spokesman for the National Fraud Authority (NFA), the government fraud-fighting agency, says that it is difficult to prosecute companies that sell too-good-to-be-true land investments, because they are clever at covering their backs. Many of these companies bury legally watertight clauses in their small print, pointing out that the success of these pieces of land is “subject to planning permission being granted”.
The spokesman says: “The terms will often say that the value of the land is dependent on certain factors that they know will never come to fruition.”
PropertySCAM, an organisation that campaigns against unscrupulous land bankingcompanies, says that thelawfulness of such schemes is open to debate, which is why so many get away with taking money from investors.
Chris Atkinson, of PropertySCAM, says: “Given that all companies that now sell plots go to great lengths to assert that what they are offering is a simple real-estate transaction and nothing more, then the customer is responsible for due diligence. If you buy a freehold land plot from one of these companies and you receive a genuine title deed and the company has no ongoing interest in the plot then nothing unlawful has happened, even if you subsequently find you paid 100 times what the plot is really worth — caveat emptor.”
A Times Money reader, John Arnold, pictured above, learnt about the dangers of high-pressure sales tactics the hard way. He lost thousands of pounds after being talked into buying a plot of land sold as “an investment of a lifetime”. The land turns out to be a protected Area of Outstanding Natural Beauty, which will almost certainly never be allowed to be developed.
In August 2009, Mr Arnold was coldcalled at home by a telephone salesman from Plott Investments (now Plott UK) and was persuaded to invest £12,600 in a block of land outside Folkestone.
“The salesman told me that Center Parcs was negotiating to buy land in that area and advised me to invest without delay or lose out on the ‘investment of a lifetime’. Over the next few days he phoned me constantly, urging me to invest,” he says. “As I was out of work awaiting an operation the chance to make some money on a surefire investment wasenticing. In hindsight I should have realised that if it sounds too good to be true, then it probably is. I now feel very gullible, but the company and its website appeared convincing.”
Mr Arnold increased his mortgage to obtain the money, which he sent off directly. However, when he received the Land Registry contract a couple of months later, he had misgivings.
“I phoned the planning officer in Folkestone to ask about the land and was told there was more chance of hell freezing over than any building being allowed in that area as it is an area of natural beauty.”
Despite paying a solicitor to contact Plott Investments to request his money back, Mr Arnold is being stonewalled over a refund, though he has not signed any contract. After Times Money contacted Plott Investments, it finally rang Mr Arnold. He says: “A man from Plott was aggressive on the phone and stated that I would not be getting my money back and as far as he was concerned I could spend what little money I had on solicitors. [Or] he said that, instead, I could putmy money intoa new development coming up on their books, a marina that would be a guaranteed short-term investment, but I would have to find a further £7,500 for it.”
Though Plott Investments says that the marina development would be a “guaranteed” investment, the small print on its website states: “We cannot guarantee if, or when, planning approval will begranted.However, weconcentrate on Greenfield land in prime locations, in areas given priority by the Government for additional house-building.”
Chris Lewis, the head of planning services at Shepway District Council, confirmed to Times Money that it was unlikely that planning permission would ever be granted for new housing or a similar development because it is on the Folkestone site outside the village boundary.
The Financial Services Authority believesthat suchcompanies makehundreds of millions of pounds from duping people. However, it says it has difficulty investigating the companies because almost all of them are unregulated.
Jonathan Phelan, head of unauthorised business at the FSA, says: “The FSA does not regulate the sale of land as land itself is not a regulated investment. However, the FSA does regulate collective investment schemes. So, when a land bank doesn’t just sell plots of land but also offers to manage and get planning permission for it, it is more likely to be operating a collective investment scheme; then we have the power to act.
“Many land banks are careful not to describe their operation as a collective investment scheme so we can’t prove that they are running these schemes without the help of investors. That’s why we ask anyone who has dealt with a land bank to tell us about their experience.”