Solicitors Specialising in Planning Promotion Agreements
If you are a landowner with property that has the potential for development, a planning promotion agreement will let you take advantage of this with a relatively low level of risk and minimal financial input. On this page, our property solicitors take a look at how land promotion agreements work and whether they are a good choice.
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What is a land promotion agreement?
Land promotion agreements are, in general terms, profit-sharing arrangements entered into by a landowner and a property development expert known as a land promoter. These agreements are legally binding contracts. under them, the landowner initially hangs onto ownership of the property, while the developer is responsible for getting planning permission – and sometimes developing the land as well.
The promoter agrees to use their expertise to apply for planning permission for a piece of land. If they are able to secure this, they will then develop the property themselves, or more commonly, offer the land for sale to property developers on the open market.
In return, the landowner agrees to sell the land when the promoter finds a buyer and to share the sale proceeds with the promoter in a pre-agreed proportion set out in the contract. The promoter’s costs are taken from the proceeds of sale before these are split.
If the promoter is not able to secure planning consent within an agreed time frame, the agreement will end and the landowner is usually not required to pay the promoter’s costs or expenses, which will include the cost of the application for planning permission.
Advantages of planning promotion agreements
A promotion agreement has a number of benefits for the landowner, including:
· The services and expertise of the promoter who will put together a strong planning application without any financial or administrative input on the behalf of the landowner.
· Once planning permission has been secured, the land is offered for sale on the open market. This means that the landowner can obtain the highest possible price, unlike an overage agreement where a price is either agreed upon in advance or calculated by way of valuations
· Because the promoter has a direct interest in the ultimate sale price, they are likely to try hard to secure the best price
· As the promoter will not receive any money until the property is sold, they will be motivated to avoid delays and complete as quickly as possible
· As well as funding the planning application, the promoter also pays the cost of marketing the land, meaning the landowner does not have to pay out any money during the process. This can be a big advantage for an owner who may not have available cash
· A promoter will have the skills and experience to manage both the planning application and the sale efficiently
· Any risk is borne by the promoter. Should planning consent be refused, the landowner is not required to reimburse the promoter for the costs incurred in making that planning application. This provides strong motivation for the promoter to be successful in both the planning application and the sale
· Because the promoter is paid on the basis of the final sale price, the risk of a dispute is reduced. This differs from other arrangements such as overage agreements, where payments are based on valuations and disagreements are more common
· Unlike option agreements, the landowner may retain more input into decision-making, particularly with regard to the final sale.
Drawbacks to land promotion agreements
There are some drawbacks that the landowner needs to be aware of before the agreement is signed, including:
· The land will be tied up for the period of the agreement, with no option for the landowner to withdraw without substantial penalties for breaching the contract
· The landowner will have limited ability to move matters forward should the promoter be slow in securing planning permission
· The planning application is successful, then the landowner will generally be liable for the full costs of obtaining planning consent and selling and marketing the property; in other types of agreement these costs may be shared
· The landowner will not usually receive any upfront payment, unlike an option agreement or sale agreement
What is the difference between planning promotion agreements and option agreements?
Option agreements are an alternative to land promotion agreements and is made between a landowner and a developer.
The property developer will pay a sum of money to the landowner. In return, the landowner gives the developer the right to purchase the land – the option – in the future once the developer has obtained planning consent.
If the developer is able to secure planning consent, they can exercise their option and buy the land outright. If they decide not to buy the land within the time period specified in the agreement, then the landowner has the right to deal with the land as they wish and keep the initial fee.
A landowner should consider whether they also want the developer to enter into an overage agreement alongside the option agreement. An overage agreement requires the developer to pay a premium to the landowner if the property is valued more highly in the future because it has planning consent for development.
Common key clauses
A planning promotion agreement will should be tailored to your specific requirements, but the following clauses are generally included:
· How the profits will be shared, for example, 80% to the landowner and 20% to the promoter
· The length of time that the agreement will last
· What steps the promoter is required to take, for example, making an appeal if planning permission is initially refused
· Liability for the promoter if they waste costs in applying for planning
· Any restrictions in respect of the development
· The right of the landowner to oppose major changes to the development
· The agreement of the promoter that they will not promote any other similar development in the area in direct competition
The importance of a robust promotion agreements
Promotion agreements are complex. It’s crucial to have expert legal advice before entering into one as well as ensuring it has been tightly drafted to protect your rights and interests as far as possible. Rest assured our team have the expertise you need. Give one of our Land Purchase Solicitors a call today.
