A promotion agreement in relation to land is a contract between a landowner and a promoter. The term promoter is often used to mean an organisation that has experience of property development, in essence an organisation or person who agrees to obtain planning permission for the land and then market it for sale.
In some cases the promoter may also have the ability to organise the build of the properties once planning permission has been granted. In most cases however the land is sold to a house builder to conclude the build process. These types of agreements have become increasingly popular with landowners who can benefit from the promoter's expertise in obtaining planning permission and marketing the land. They gained popularity following the global financial crisis, as volume housebuilders encountered financial challenges, and local authorities experienced heightened pressure to maintain a five-year housing land supply.
The promoter typically bears the costs of the planning application, reducing financial risk for the landowner. The costs of obtaining planning permission and providing the supporting documents and reports can run to tens of thousands of pounds, if not more. With planning permission, the value of the land can significantly increase, leading to higher sale proceeds. Promotion agreements are now considered along with other types of agreements like option agreements, conditional contracts, and joint ventures as a viable option.
What are the stages and how can we assist?
1. One of the main risks for the landowner is the terms. The terms could favour the promoter. We will review the terms and advise on them including analysing the promoter's responsibilities and powers, ultimate control over decision making, ensuring maximum development potential, costs, the percentage of sale proceeds the promoter will receive once the land is sold, and governance of disputes and ensuring acting in good faith throughout. Clear terms in the promotion agreement ensure fair distribution of proceeds and cover all parties’ expectations and obligations.
2. Once agreed the promoter will apply and pay to obtain planning permission, including all supporting reports, plans and designs. Depending on the terms, this cost maybe returned to the promoter on the sale of the land.
3. Once planning permission is secured, the promoter markets the land for sale, typically to established house builders.
4. The timing of the sale is aligned with positive market conditions, ensuring competitive bids and a high sale price.
5. After the land is sold, the sale proceeds are distributed according to the terms of the agreement. Typically, the landowner receives most of the proceeds, while the promoter receives a pre-agreed percentage or fee. It is in both parties interest to market the property and sell at a favourable time as both will receive a return in different proportions on sale.
Promotion agreements can help landowners who lack the expertise or resources to apply for planning and handle all the queries. Legal and professional advice is essential when entering into a promotion agreement to ensure that interests are adequately protected, and objectives are clearly defined. Call our expert commercial property team on 0161 696 6174.
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