Why sell land under a promotion agreement? All you need to know

When it comes to selling land for development, one useful approach isa promotion agreement. The collaborative nature of promotion agreements means both parties work together to achieve the best possible price for the sale of land, and can usually enjoy a positive, transparent relationship throughout the process.

What is a promotion agreement?

A land promotion agreement is a contract between a landowner and a developer (or specialist land promoter) with a specific approach as to how value is added and then shared. The agreement allows the landowner to benefit from the developer’s expertise, experience, and financial resources to both gain planning permission and also see their land offered for sale on the open market.

Obtaining good planning permission increases the value of the land, and an open-market sale (with good marketing) introduces competition for the land—both of which optimise the site’s value when sold. A key benefit to this approach is that the developer’s and seller’s interests are aligned. They are both motivated to get the best final price for the site.

When are promotion agreements worth considering?

Promotion agreements are not appropriate for most developments and are only usually used where there is a lot of uncertainty about Planning potential. In fact, they are often used for land that is outside of any current allocation for development within a Local Authority’s plans.

This means they are often used where getting planning permission is purely speculative, or where the parties are in a long-term campaign to change the planning status of land. Therefore, promotion agreements often deal in long timeframes of typically 10-15 years.

Why such long timeframes?

Every Local Authority in England should have a Local Plan to guide development in their area for the next 15 years. About two-thirds of councils are late to updating these. The long timeframe is intended to allow promotors time to promote the site to the Council, with the ultimate goal of getting the site in to the Local Plan.

Only once a site is within a suitably allocated area of the Plan does it have any chance of Planning Permission for development. Promoting a site within the Local Plan is a slow, expensive, and uncertain process (or campaign). However, if successful, it can be very valuable.

How do promotion agreements work?

Under a promotion agreement, the seller allows the developer to use their expertise, experience, and resources to plan and execute a strategy for the site to be included within the next (new) Local Plan that the Local Authority will produce. This is easier said than done, and will require much specialist work and time (as mentioned above) to be successful, if at all.

Only once the site is within the Local Plan can the (more conventional) process of applying for Planning be carried out. The Planning application is about the specifics of what the developer and landowner want to build; whether that be housing, retail or logistics. If the Planning application is successful, the site can be prepared for sale.

The developer and landowner will have agreed how the site is to be marketed, including brochures, websites, and advertising. The marketing is about creating the most interest and competition amongst buyers for the site. Potential buyers will put offers forward offers and the developer and landowner will then review those offers, including their ‘proceedability’, and select one.

A traditional conveyancing process will then be carried out for the sale of the land. Once the land is sold, and the buyer has paid, the final part of the process can complete. This is the sharing of proceeds. Depending on what was agreed at the beginning, the developer will typically receive 20% of the proceeds and the landowner 80%.

At Landhaven, our projects are based on strong design principles, quality craftsmanship, and unwavering respect for the environment and the local community. If you’re looking for collaborative property development opportunities that maximise potential and work well for all involved, get in touch.

Advantages of promotion agreements for a landowner

As with any agreement, there are advantages and disadvantages to promotion agreements.

  1. Financial benefits. Under a promotion agreement, the promoter takes on the cost of getting planning permission. It’s in their interests to promote the land and gain the highest value, as they only get their share of uplift once the land is sold, with planning permission, to a developer.
  2. The landowner keeps control of the land. While the promoter works to obtain planning permission, the landowner maintains control and is not obligated to sell the land to any given party (although they are obliged to sell in due course) . This is unlike an option agreement, where the landowner is contracted to sell the land to the developer within the option period, should the deveopery choose to buy it.
  3. Expertise and experience. The landowner can benefit from the expertise of the promoter, who will take on the whole process of obtaining planning permission and securing the sale of the land.
  4. Collaboration and transparency. Throughout the process, the landowner will be kept informed and consulted on decisions. They will know the value of the developed land before they agree to sell it. It’s in the interest of both parties to get the best price for the land so they are motivated to work together, rather than competing against each other.
  5. Value. The land will be sold to the open market at its actual market value, rather than at a hypothetical one. Because of the work the promoter has already done to gain planning permission and market the land, buyers are likely to pay more because there is less risk.

Advantages of promotion agreements for a developer

The main attraction of a promotion agreement is that it works in favour of both parties and encourages collaboration and transparency. From the point of view of a developer or promoter, promotion agreements also:

  1. Avoid the cost of buying land before knowing its value. The developer/promoter can take time to go through the planning permission process and market the land, before committing to buy it.
  2. Remove any conflict of interest. With an option agreement, a popular alternative to a promotion agreement, the developer and landowner will negotiate on the price of the land to get the best deal for them. With a promotion agreement, such competition and potential conflict are avoided, because both parties pursue the highest value possible for the land.
  3. Promote collaboration. Because both parties work together, there is often a more positive working relationship between the landowner and developer/promoter.

What are the risks?

A promotion agreement is a binding contract, so there is no more risk than any other type of contract in terms of it being broken. The main risk for the developer (aside from not getting Planning) is that there may be some interference from the landowner.

To ensure their best interests are protected, it’s essential for both parties to seek specialist legal advice before entering into a promotion agreement.

Promotion agreements are expensive to set up, and the reality is that they are very specialist tools, most often used by big developers that take a lobbying approach to getting large swathes inside Local Plans. On the whole, they are not usually suited to small-scale landowners.

Promotion agreements are a cost-effective, collaborative way to embark upon selling land for development, and mean that landowners can avoid the stress and responsibility of going through the complex planning permission and marketing process themselves.

At Landhaven, our projects are based on strong design principles, quality craftsmanship, and unwavering respect for the environment and community. If you’re looking for local, collaborative property development opportunities in the Bristol area, get in touch.

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