Buying a Holiday Park: The Legal Considerations
Appetites for holiday homes and lodges have swelled in the UK on the back of the COVID-19 pandemic and the ensuing staycation boom. Nick Dyson, Head of Commercial Property at Blacks Solicitors, discusses the legal pitfalls that need to be considered when purchasing a holiday or residential park.
With travel abroad still under strict restrictions thanks to the ongoing COVID-19 crisis and the impact of Brexit, staycations have become a significant trend of 2021, which has helped to boost the UK economy and support local businesses at what has been a period of significant economic uncertainty. In fact, according to holidaycottages.co.uk, four out of five Brits (84%) are planning a staycation in 2021.
We have already seen the positive impact of the staycation boom on numerous businesses, including Hull-based holiday home manufacturer Willerby, which recently reported that it was hiring over 100 staff to meet the growing demand for holiday homes. In fact, Park Leisure recently revealed that over three quarters of Brits (77%) now aspire to own a holiday home in the UK.
Now more than ever, the public are contemplating buying a holiday home or lodge on a park, leading to more interest in existing and new operators looking to invest in this sector by buying or developing a holiday park business. Yet there are numerous legal pitfalls that anyone should be aware of before committing to such a move. This article explores the main issues to note when dealing with holiday parks, but we have also referred to residential parks where appropriate as they are governed by similar regulations.
Property and planning law
The main value of a holiday park is usually the property or land that is being purchased. It is therefore key to check that the title plans match the boundaries on the ground, as parks are often added to over time, but this will not have been noted in the plans.
Access is vital. If access to the park is via a track or small road over adjoining land, the correct rights need to be granted to get in and out of the park. The same applies for services. For example, we offered advice for a situation where a park used a drainage pipe which was owned by an adjoining farm. Years later, pitches had been added and the farm had been sold to another party, leading to a dispute as to whether the park had the appropriate rights to use the drains.
The main value of a holiday park is usually the property or land that is being purchased.
Check the site has the correct planning permission and site licence for the current use. Park operators can sometimes add additional units to the park without securing formal consent which can lead to difficulties later down the line. While rights can be acquired, this is not guaranteed. Discrepancies may also occur between the number of units permitted by the planning permission and those allowed under the site licence (which will usually prescribe a minimum distance between units for safety purposes).
Ensure any third party funding the purchase of the park understands the valuation and operating model of how parks work and the process involved in making a profit. A lack of understanding can lead to confusion or conflict, which can damage relationships between a purchaser and any funder or significantly impact the profitability of the park. There are specialist valuers who can provide education in how a park operating model works.
Litigation and regulations
It is also important for a buyer to ascertain that the necessary licences are in place with the occupiers on site. Informal arrangements may develop over time, particularly on holiday parks; however, this means that there may be no written record of the licence terms. In this instance, the rights and responsibilities of each party should be considered in terms of transfer of land and whether there is an opportunity for a buyer to utilise the lack of formality. This could involve seeking to introduce new licence terms and/or terminating licences to aid redevelopment opportunities.
Holiday parks often have site rules in place which complement any Licence Agreement. A buyer will need to know what these rules are, and whether they have been implemented appropriately and enforced consistently.
Ensure any third party funding the purchase of the park understands the valuation and operating model of how parks work and the process involved in making a profit.
As part of the due diligence process, potential buyers should seek information on previous and existing disputes with occupiers on the site. In the case of a residential park, it may be worthwhile to search the record of decisions maintained by the First Tier Tribunal to ascertain if there are any previous relevant decisions.
A residential park in particular may have a qualifying residents association in existence. A buyer will need to know of its existence to ensure that after purchase they discharge their statutory duty under the Mobile Homes Act 1983. This ensures that the buyer consults the association on all matters related to the operation and management of, or improvements to, the park which may affect the occupiers either directly or indirectly.
It is imperative to discuss the potential purchase of a holiday or residential park with lawyers and accountants to confirm the most effective strategy when it comes to structuring any transaction. Whilst a share purchase will ordinarily be a more tax-efficient method, it will result in providing a larger suite of warranties and a tax indemnity in respect of the company’s tax affairs to the buyer. Therefore, serious consideration should be given to which structure is the most beneficial in all circumstances.
As part of the due diligence process, potential buyers should seek information on previous and existing disputes with occupiers on the site.
Always ensure a proper and in-depth due diligence exercise is carried out. Despite the fact that holiday and residential park businesses may have a limited number of assets and contracts, there are almost always some issues or liabilities in respect of the business. In the absence of an effective due diligence process, the buyer would be unaware of these issues which would only then come to light after the sale has completed.
Ensure that contractual protection is provided when it comes to the seller’s compliance with planning laws and consents in connection with the business. The most common issue with holiday and residential park businesses is a failure to adhere to the terms of the Site Licence or other applicable permits, consents, regulations or legislations. As such, having robust contractual protection in place to avoid these potential liabilities is crucial.
As with many aspects of life over the last year or so, how we holiday has never looked so different. That trend of having more staycations is likely to remain given the ongoing uncertainty presented by COVID-19 as well as additional regulations caused by Brexit. The impact on the holiday park sector in particular is being felt. Whilst this will undoubtedly lead to opportunities to invest and develop further in this sector, as with many things there are associated risks, as highlighted above.
For any buyers or individuals considering purchasing a park, it is crucial to secure the right advice from legal experts, accountants, and specialist valuers to ensure legislation is adhered to and avoid issues cropping up later down the line.
Nick Dyson, Head of Commercial Property
Address: City Point, 29 King Stree, Leeds, LS1 2HL
Telephone: +44 0113 227 9344
Blacks Solicitors is a 25-partner firm providing a wide range of legal services to commercial and private clients in Yorkshire and across the UK. With 180 employees, the Leeds-based firm provides advice on corporate and commercial law, commercial property, leasehold enfranchisement, employment & human resources, commercial and civil dispute resolution & litigation, residential property & conveyancing, wills & probate, and family law. In addition, Blacks also acts for clients across a range of niche sectors including healthcare, education, leisure & hospitality (including holiday & home parks and hotels) and sport.
Nick Dyson is a partner at Blacks Solicitors and heads up both the Commercial Property team and specialist Holiday & Home Parks team. He advises property investors, developers and occupiers as well as funders on acquiring, developing, selling, letting and charging property, and is regarded by the Legal 500 as “always reliable”. Since taking his position as a partner, Blacks’ Commercial Property team has more than quadrupled in size.