The Insolvency Service is warning the public to be alert to the unscrupulous practice of land banking as figures indicate that these scams are on the increase.
Since 2007, Company Investigations, part of The Insolvency Service, has closed down 49 land banking companies in England and Wales that have collectively caused the public to lose over £30m. Land banking involves a plot of land being bought by "developers" and then being sub-divided into a number of smaller plots which are then marketed, often under the false pretext that planning permission will be granted for development.
The Insolvency Service said it has seen a 33% increase in the number of complaints it received between 2009 and 2011 against companies involved in these scams and a 100% increase during the same period in the number of complaints about land banking scams accepted for investigation.
To date, nine directors of land banking companies have been disqualified by The Insolvency Service for a total of 86 years. It is estimated that total losses from all land banking scams exceed £200m nationwide.
Land banking scams first emerged in the UK several years ago, but in the last three years, The Insolvency Service has witnessed an increasing amount of activity in this area and an increase in the number of complaints it has accepted for investigation. There were seven cases accepted for investigation in 2009; 11 cases in 2010; and 16 cases to date in 2011.
Land banking scams focus on cold calling, 'hard sell' techniques, with salesmen offering plots of land to investors who are under the impression that they will be able to develop the land at some point in the near future in order to make a quick and substantial financial return. However, the land is usually sold to the investor without the necessary planning permission and in some instances it is green belt land, or otherwise protected from development by law. In the simplest terms, it is never likely to get planning permission.
Robert Burns, head of investigations at the Insolvency Service, said: "It's clear that land banking scams are designed to target the more vulnerable investor, many of them trusting pensioners who are eager to see a greater return on their savings or pension lump sum than they could ever expect from traditional savings and investments. Tragically this often leads them to rashly invest in what seems to be, on the face of it, safe 'get-rich-quick' schemes.
"We need to alert people to the warning signs and the fact that if a scheme seems 'too good to be true', that's usually because it is.
"The public need to be aware that land sold in these schemes is nearly always sold without planning permission and promises that planning is likely or in place, is a tell-tale warning signal. A check with the Local Authority planning office should provide a quick answer on the prospects of planning permission. Many potential buyers, including those now being targeted from overseas, might not be aware of this. Land Registry also includes some helpful advice on its website."
Mike Westcott-Rudd, Land Registry's had of corporate legal services, said: "We know that land banking companies have sometimes used forged letters or documents carrying a Land Registry stamp as an 'official guarantee' that either their plot of land already has, or will, gain planning permission.
"Land Registry is so far unaware of any land banking schemes where planning permission has subsequently been granted. It is typical for plots of land sold in land banking schemes never to be eligible for planning permission, for example, because the land is situated in the green belt. Those looking to invest should remember that Land Registry is not involved in the planning process at all.
"Land Registry is working with The Insolvency Service, the FSA and the Police in a joint effort to raise public awareness and combat land banking scams."