What is a promotion agreement?
Under a promotion agreement, the promotor promotes the land through the planning process. Providing planning is granted the promoter will market the land to secure buyers.
The landowner agrees to sell the land to the successful buyer.
Net sales proceeds are shared between parties, at a pre-agreed rate.
What is the advantage of a promotion agreement?
- Costs (lower for developer)
- Value - will be market value (market tested), not hypotetical pre agreed value
- Intersets are shared
Disadvantage - the landowner has less control over who buys the property.
What is an option agreement?
The developer would usually undertake the cost of applying for planning consent, but would take an option to purchase the land for a pre-agreed value once consent is gained.
The price may be a fixed pre-agreed sum, or it may be assessed at the date that the planning permission is granted as the market value, sometimes deducting the developer’s cost in gaining the permission and usually a pre-agreed percentage reduction to reflect and reward the developer’s efforts in gaining the permission in the first place.
The developer does not have to excercise the option.
Benefits/ drawbacks of option agreements?
Main disadvantages are:
1. interests of each party are at odds
2. Market will not be tested once planning is obtained
Major advantage is that the landowner will have chosen the developer who will purchase the land, although once it is purchased they coudl always sell it on.
Who incurrs the costs in option/ promotion agreements?
For both Promotion and Option Agreements, the costs of obtaining a planning consent will, in most cases, be borne initially by either the promoter or the developer.
In a promotion agreement, the developers costs will be taken off before profits are split as agreed.