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When editorials in the property press are talking about negative equity and tip-over point, it may seem strange that major registered social landlords should buy and assemble sites without outline planning consents. Landbanking can be risky at the best of times – it involves unknown quantities such as access, sound attenuation, environmental impact and other matters that can delay and raise costs on a project.

However, with conventional procurement routes increasingly competitive, a landbank could be an attractive way to bring in money from the Challenge Fund or slippage funding.

Of course landlords that take the chance are not cavalier about it. They employ consultants to investigate, assess and finesse the risk so they do not buy blind. But the valuation always contains a big "if".

Many of the potential sites have commercial uses and the seller has to recover VAT. RSLs cannot afford recoverable VAT, but interposing a friendly developer – the "golden brick" route – is difficult without planning permission. Increasingly, we will see an unregistered subsidiary of the RSL used to buy, hold and transfer land to the parent. There are other solutions: the seller can pass property around its VAT group, for instance, but negotiators should remember to address the VAT issue at a very early stage to make life easy for the seller.

Remember also that the unregistered subsidiary will need funding and careful arrangements have to be made to avoid stamp duty and tax pitfalls and to get contractors to contract without a parent company guarantee.

Porkies in the middle
Often, sites are brought to RSLs' attention by middlemen with local knowledge. Some take a finder's fee, with the RSL buying direct from the site owner. The only concern there is the recent Dubai Aluminium case, which some lawyers think extends a liability on dishonest acts of agents to situations where the agent acted outside the scope of its authority. There could be vulnerability here if the middleman deliberately misled the site owner or suborned one of the site owners' employees, but that would be an extreme case.

The middleman will not want the site owner to know it is selling on and will be in a hurry to get the site owner under contract

Other middlemen buy to sell on to the RSL at a profit – that raises greater difficulties. The middleman will not want the site owner to know it is selling on and will be in a hurry to get the site owner under contract. Indeed, it often already has the site owner signed up, so enquiries raised by the middleman are often inadequate and it refuses to answer any enquiries or go back to the site owner with further enquiries.

Getting indemnities out of the middleman's shell company is pointless and the site owner cannot be liable for any misrepresentations because it is not in contract with the RSL. Therefore, if further investigation is needed, a portion of the middleman's price should be retained while investigations are under way.

The middleman will want to assign its contract with the site owner to the RSL or at least a sub-transfer, to avoid stamp duty, which at 4% would be a big slice of its profit.

However, most industry-standard conditions of sale prevent assignment and some prevent sub-sales. Astute middlemen will amend their purchase to permit onward sale, but some rely on persuading the site owner to cooperate. Although a surprising number of owners do cooperate, the RSLs' lawyers must check, before they pay, that it will get what it pays for.

The RSL has to see the original site owner contract – often the price is left out. Should the RSL worry about the profit the middleman is making? There is a risk to reputation – no chief executive or chair wants to read accusations that they have put taxpayers' money into middlemen's pockets. The disappointed site owner might also have "influence" and further damage may be done to the RSL at local level.