Over the past five years, planning promotion agreements - also known as land promotion agreements - have become increasingly popular with both landowners and developers as an alternative to option agreements.
Under a typical planning promotion agreement, a developer agrees to promote the landowner's property for development - to apply for and use reasonable endeavours to obtain planning permission and, having secured planning permission, to market the property for sale in the open market.
In return for providing these services, the developer will receive a fee or a proportion of the net sale proceeds after various costs, such as planning costs and land costs, have been deducted and reimbursed to the developer.
Promotion agreements are often preferred by a landowner's agent - possibly because they are considered to be less risky - and they do have the following advantages for a landowner:
- they do not usually require the landowner to sell all of his land to the developer. Instead, after planning permission has been obtained, the promotion land must be marketed for sale and sold in the open market for the best price reasonably obtainable. The net sale proceeds are divided between the landowner and the developer. This does not, of course, prevent a developer from bidding for the land or acquiring an interest in the land indirectly e.g by entering into a collaboration agreement with another party behind the scenes whose bid for the land is accepted. But it does mean that the purchase price for the land will have been market tested - which does not happen in the case of an option agreement
- the developer is less likely to agree to unreasonable planning gain costs with a local planning authority, since this will impact on its share of the proceeds of sale
There are a number of important provisions which a promotion agreement should contain. These include:
- a list of promotion objectives - which the developer should be obliged to use reasonable endeavours to achieve
- various planning obligations on the developer - a well advised landowner will require a degree of control in relation to planning matters and the right balance will need to be struck in order to ensure that both parties' interests are safeguarded and neither party feels exposed
- various obligations on the landowner, such as to enter into any required planning agreement, to sign promptly any contract and execute any transfer in order to achieve a sale of the promotion land and not to transfer, lease, charge or deal with the property in any way
- provisions dealing with the marketing and sale of the promotion land - a landowner may wish to consider including minimum purchase price provisions
- provisions dealing with costs, including planning costs, land costs and infrastructure costs - a well advised landowner will want to ensure that all costs incurred by a developer are reasonable and may wish to have the ability to approve such costs or to impose a cap on such costs. The parties will need to be aware that the carrying out of infrastructure works may trigger a liability to pay the community infrastructure levy
- provisions dealing with how the sale proceeds are to be distributed between the landowner and the developer - the parties will need to be aware that VAT will be payable on the developer's share of the net proceeds of sale and the landowner will not be able to recover any VAT unless he has 'opted to tax'
- provisions dealing with the duration of the promotion agreement - the promoter will not want the promotion agreement to terminate if, at the expiration of the promotion period, a satisfactory planning permission has been granted and the promotion land or part of it remains to be sold
- provisions dealing with security and the protection of the developer's interest in the promotion agreement
Gavin gives a more detailed consideration of the above matters and promotion agreements generally in the second edition of his book: "Property Development" published by the Law Society in 2014.