One of the favourite ways of land owners and developers to work together has been the granting of an option by the land owner to the developer under which the developer has the option of buying the land if he secures planning permission for its development.
These have often morphed from simple documents to those many pages long. This is due to the increasing length of the option period, the increasing sophistication of the requirements of both parties and the nature of the planning system.
Of late, particularly relating to land which may take time to be allocated in the Local Development Framework, we are seeing an increasing use of promotion agreements. These agreements contain many of the provisions of a modern option agreement but rather than the developer acquiring the land they lead to a joint sale to another to build out the proposed development.
The developer(often referred to as the promoter) is required to use its expertise and money firstly to promote the particular property in the Local Development Framework and then to obtain a planning permission for development which maximises the value of that property either alone or in conjunction with other land.
Accepting that an option agreement and a promotion agreement will have many similar provisions, what are the advantages of a promotion agreement over an option agreement?
1. The land owner, or indeed owners, and the promoter know the percentage of the sale price for the property that each will receive when it is granted a planning permission.
2. As the promoter knows that he will get a fixed percentage of the ultimate price together with the reimbursement of its expenses this acts as an incentive.
3. Under an option agreement at some time there will be a conflict of interest between the parties. At the time of the exercise of the option the land owner will wish to see the highest value for its land whereas the developer, being a buyer, will wish to see the lowest value of that land.
Under a promotion agreement the promoter does not buy the land but together with the land owner offers it for sale in the open market. That means that both parties are interested in seeing the maximum sale price.
4. In a time of uncertainty as to the levels of taxation and tax regimes the promotion agreement offers a greater flexibility in structuring the ultimate sale of the property to the advantage of both parties.
If you wish to have more information about promotion agreements or option agreements please contact Hugh Ellins on email@example.com
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