If someone tries to sell you land with the promise of making a large return, beware – you could be handing over thousands for something that is worthless, warns Andrew Gough, commercial property and planning law expert with Furley Page.

Many unsuspecting investors are being conned into buying land that has little or no chance of ever being developed. Land banking schemes are marketed as a way to invest cheaply in land that has apparent potential.

A promoter buys a large piece of land, divides it into plots and sells each plot to an investor, who is promised they’ll see a large return once planning is obtained and the land can be sold or developed.

The marketing is slick. The title is registered at the Land Registry and the investor is persuaded to part with their money quickly without undertaking any relevant searches or enquiries about the true status of the land they’re purchasing. The seller may even offer to register the transfer at the Land Registry so you get good title, convincing you that there’s no need to involve lawyers.

According to the Financial Services Authority, the number of complaints about land banking schemes has been rising as more people discover they have invested in a plot of land that has little development potential.

It may be in the Green Belt, for example, which means the promoter has bought it cheaply, perhaps at agricultural value, just to make a quick return on the plot sales.

The Land Registry is obliged to make the plot registrations (unless it considers there is some title fraud being perpetrated on the landowner /promoter, not the individual buyer). The buyer’s then left with a registered title to a plot of land which is never likely to be developed, while the seller (usually a company formed just for the project and with no other assets) has pocketed the money and disappeared.

The FSA does not regulate the sale of land but it does regulate collective investment schemes (CIS) and a firm must be authorised by the FSA to promote or operate a CIS in the UK. The FSA can only take action over a land banking scheme when it is being promoted or operated as a CIS without authorisation.

The scheme may be a CIS where investors do not have day-to-day control over managing their plot. The scheme involves pooling investor funds and the operator is responsible for managing the scheme. It is possible to sell plots of land without the scheme being a CIS, so many land banking schemes are set up to avoid the characteristics of a CIS.

The FSA estimates that schemes which con investors into buying worthless plots of land are now costing consumers as much as £200 million a year.

So if you’re offered such an investment, speak to the local authority planning department and make sure you seek legal advice.

Contact Andrew Gough by emailing ajg@furleypage.co.uk, phoning 01227 763939, or visiting www.furleypage.co.uk.