A land promotion agreement is really a type of joint venture agreement. Typically, a land promotion agreement will between a landowner and a planning promoter/developer and it would be used where a land promoter/developer has agreed to:
- Apply for planning permission for a development on a landowner’s property; and
- Market the property for sale on the open market once planning permission has been obtained.
Under a land promotion agreement the land promoter/developer funds the planning and marketing costs initially. If planning permission is obtained, the property is sold. The promoter’s costs are reimbursed to the promoter out of the gross sale receipts and the promoter receives a proportion of the net sale receipts (promoter’s share) i.e. a proportion of the gross sale proceeds generated by sale of the promotion land after various cost (for example planning) have been deducted and reimbursed.
If planning permission is not obtained by a certain date, the agreement automatically terminates and the promoter’s costs are not reimbursed. In this way, the landowner and the planning promoter/developer share the development risk i.e. planning and a sale not being achieved.
Promotion agreements are similar to option agreements. Many of the key issues which need to be considered in relation to promotion agreements are the same as those which need to be considered when dealing with option agreements, although there are fundamental differences between the two types of agreement. Under an option agreement, the landowner is usually obliged to sell the property to the developer once planning permission has been obtained. This gives rise to a conflict of interest between the landowner and the developer. The landowner wants to maximise the purchase price whereas the developer wants to minimise the purchase price. Under a land promotion agreement, once planning permission is obtained, the property is to be sold on the open market. The property will not be sold to the promoter. The landowner and promoter share the uplift in the value of the property with the benefit of planning permission. Therefore, there is no conflict of interest over the purchase price.
The key points which the parties to a promotion agreement will need to think about include:
1. Objectives. The promotion agreement should contain a list of objectives, which may amongst other objectives include obligations on the planning promoter/developer to:
- use all reasonable endeavours to obtain a satisfactory planning permission which maximises the open market value of the property in the quickest time reasonably possible;
- to procure that the property is allocated as a site suitable for development in the local authority’s development plan document;
- to maximise the development area of the property;
- to minimise so far as is commercially sensible the cost of infrastructure on the development area of the property;
- to minimise so far as is reasonably possible the financial obligations contained in any planning agreements;
- to market the property after obtaining planning permission with a view to maximising sale proceeds.
2. How long will the planning promoter/developer have to obtain a satisfactory planning permission. If a satisfactory planning permission is granted during this period how long will the land promoter/developer have to sell the land comprised within the satisfactory planning permission.
3. What are the parties obligations in respect of the planning process:
- Is the planning promoter/developer free to appoint whatever professional consultants it considers necessary or does the landowner need to consent to the appointments;
- Is the planning application an outline, detailed/full planning, outline consent followed by a reserved matters application or a hybrid;
- Does the landowner need to approve the planning application;
- Can the planning promoter withdraw, vary and/or submit further planning applications without the consent of the landowner;
- Are there any restrictions on actions the landowner can take i.e. not objecting to any planning application submitted by the planning promoter/developer.
4. What are the parties obligations in respect of sales process following the grant of planning permission, for example:
- Does the landowner need to approve the marketing strategy. An agreed sales/marketing agent should be required to draft a marketing strategy as soon as reasonably possible after planning permission has been granted.
- Can the planning promoter/developer vary the marketing strategy without the consent of the landowner.
5. What costs are deductible from the gross sale proceeds? The planning promoter/developer will want to ensure that the costs it has incurred are reimbursed prior to any distribution of sale proceeds and the promotion agreement should set out the order of priority in which a sale proceeds were distributed.
6. What is the planning promoter/developer’s split of the net sale proceeds?
