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Government has published details on the "build now pay later" scheme

The Government has released further details of the new 'Build Now, Pay Later' scheme, in relation to the disposal of surplus public sector land. It committed to maximising the model in the Housing Strategy, published in November 2011.22 Dec 2011

The scheme outlines the Build Now, Pay Later terms which Government will ask developers to bid on when they are disposing of the land; highlighting the advantages that the Government believe the scheme will deliver for developers and landowners.

Not all public sector land will be suitable for the Build Now, Pay Later scheme, the Government said, and the use of the model will be tested on a site by site basis to ensure value for money and affordability. The Government will compare bids on Build Now, Pay Later terms against the traditional upfront payment with overage, to ascertain whether the bid is suitable for the scheme.

In submitting bids for the scheme, the Government has said that developers should reflect the benefits of the scheme in their financial offer for the land. The Government considers that the reduction in developer's finance costs, the degree of risk sharing and the ability to dispose of the development more quickly, should all be reflected in the bid proposals.

Under Build Now, Pay Later, housebuilders will pay for the land after they have started work on the new homes, which is aimed at managing cash-flow and enabling them to start building straight away. The scheme has been launched in conjunction with the Government's release of public sector land that has capacity to build up to 100,000 new homes over the Spending Review period, which ends in 2015.

There are two Build Now, Pay Later models: Phased Payments and Risk Sharing. The Phased Payments model allows the developer to spread the payment of the land across a number of phases, with specified dates or triggers for when payments should be made.

This model should improve developers' cash flow and expose them to less risk, as the payments are linked to completed or sold phases, according to the Government. The timing of payments and percentage of land value paid on completion of each phase can be varied to suit the risk characteristics of the site, the Government said.

The second model is Risk Sharing, which allows developers to share the risk and reward from market movement in house prices and the subsequent revenue generated. This model does not include sharing the risk of fluctuations in development costs, which would be borne by the developer.

It is hoped that this model will assist larger sites that require significant infrastructure investment to come forward quicker and will be attractive to developers where uncertainty over receipts is perceived to be the case, according to the Government.

The approach will not normally specify payment dates or the amount to be paid on completion of each phase but will apportion the sales receipts between the developer and landowner. The percentage share will typically be the outcome of the competitive process, the Government said. This model could include longstop payments.