While most purchases of property are completed by the purchaser paying for its acquisition with money, it is possible to pay for a purchase in other ways.  One of these is where each party exchange one plot of land for another.  These swaps can apply to any type of land, whether it’s developed or rural, commercial or residential.  Often the plots in question adjoin or are close together but there is no limit to the distance between them.  So how does this work?

The first step is the value the plots to establish if a straight swap is possible in financial terms, or whether there will need to be a balancing payment passing from one party to the other.  This is important not only to ensure that each party gets a fair deal, but also to ensure that Stamp Duty Land Tax is paid on the full value of the exchange.  Considerations in valuing the land will include the existence of planning permissions, restrictive covenants and existing rights of way.

Once valued, we would always recommend that an investigation of the title to each parcel of land is undertaken and a formal contract entered into to ensure that both parties have remedies for any failure on the part of the other to honour the bargain.  Where the swap is not limited to two parcels of equal value, and other consideration is involved, this is particularly important as the additional consideration will need to be detailed correctly.

Particular issues that can lead to complications include:

Existing rights of way – where an exchange involves a part of an existing title (eg undeveloped land belonging to an office block), there could be rights of way granted to tenants or neighbouring properties over that undeveloped land.  These may not be immediately obvious, even from an inspection of the official copies of the land’s title, as not all leases are required to be registered, but would very likely take precedence over any new purchase.

The intended future use of the land exchanged – if the parcels are close, or adjoining, one party may wish to restrict certain uses or development on the land, or compel certain behaviour such as maintaining a new boundary.  This can be achieved by using restrictive or positive covenants in the transfer of the relevant parcel.  Bear in mind though that only some covenants will continue to apply to future owners of land, however these are worded.  Those that are positive in nature may require further documents to be entered into, and restrictions complied with by future purchasers before any further sale of the land can be registered.

Existing lenders would need to consent to any exchange.  If the exchange is of a whole title and an existing charge or mortgage is to be released, this is a straightforward matter.  If the exchange involves part of a title, a lender may require settlement of part of the charge or a revaluation to ensure that the remaining land is sufficient collateral for the loan or the transfer of the loan onto the newly acquired parcel.  For this reason it is essential to involve and lenders early in the negotiations.