The Reader's Campion: Clampdown on land bank fraud could be too late

Jun 12 2008 Lesley Campbell, Daily Record

IN JANUARY 2006, I flagged up the emergence of a new industry which was about to become a financial scandal.

Tipped off by a reader to investigate land banking, I was concerned by promises being made by bogus property investment companies.

At the time I wrote: "Spiralling property prices have begun to spawn a new rip-off industry.

"One scam is the sale of small plots of agricultural land which, the sales companies claim, may get planning permission and increase in value by up to 300 per cent.

"The websites look professional and include reports from august bodies talking about the increase in land values. But what they don't say is that many of the plots of land are overpriced, in remote areas with no services and will never qualify for planning permission."

Two years later, the extent of this fraud is beginning to emerge. The financial regulator, the Financial Services Authority (FSA), recently asked the High Court to wind up the UK's largest landbanking company - UKLI Limited.

This company sold land worth £69million to the public, none of which was ever granted planning permission. But no-one has yet estimated the total amount paid by unwitting victims to the hundreds of identical companies.

As a low-risk, longterm investment, land does have enormous appeal and even cautious investors were reassured by the empty promises of guaranteed buybacks.

Unfortunately, many of the firms disappeared before they could be called on to fulfil their promises.

Other investors were shocked to discover that the land they had bought was unlikely ever to be developed as it was in protected green belts or in areas of outstanding natural beauty. Some plots were on flood plains or had high-tension electric cables running across them.

While it is true that land designated green belt is occasionally released for development if there is an acute shortage of employment or housing in an area, these plots are unlikely to be the ones offered to small investors - they are more likely to be kept back by the property companies.

Many buyers, content to sit on their plots and watch values gradually increase have been shocked to discover they paid well over the odds for their land.

Typically, land banking companies would buy a large parcel of land and divide it into plots. If the initial investment were £50,000, 100 plots with a notional value of £500 would each be sold on at £25,000 - making a massive profit for the bogus property company.

Not only would the investor own land which can never be developed and can't be farmed, the price paid for it could be 50 times its real value.

Victims of land banking scams now have a number of difficult decisions to make. They can hold onto the land in the hope that its value will eventually increase or that planning permission will be granted.

In the case of UKLI and other companies in liquidation, landowners can return their plots to the company but they will not be assured of a full refund. The land becomes an asset of the company to be shared out between all the creditors. And the amount repaid is likely be a lot less than the amount they paid.

There have been a number of attempts to persuade individual owners to join forces and to apply for planning permission as a body.

As is usual with scams of this nature, a second generation of conmen has entered the arena to capitalise on owners' distress by suggesting exit strategies - for a fee.

Other disillusioned landowners have been tempted by an offer to swap ownership of their land for shares in a new company that will market the land. But a payment of five per cent of the cost of the land is required before this can proceed.

Some schemes will fall foul of the same legislation that caused UKLI and several other companies to close down and won't advance investors' cause.

I would advise anyone considering arrangements like these to take advice from an expert.

Some land bank companies claim to be registered with the FSA when they are not, or claim that they are not required to register. If they are not registered, the protection of the regulator and the compensation from the Financial Services Compensation Scheme will not be available to investors.

Buyers who paid for all, or part, of their land by credit card may be eligible for a refund. And buyers who took legal advice from a solicitor employed by vendors may also have redress.

Contact the FSA on 0845 606 1234 or consumerdirect on 08454 04 05 06.

I TRY to help everyone who writes in, but sometimes the volume of letters makes this impossible. Please put your full name and phone number on your letter or email. Don't send any original documents or include your account details.  You can email me at readerschampion@aol.com or write to me, Lesley Campbell, at Daily Record, One Central Quay, Glasgow G3 8DA