Land promotion agreements

Many landowners may not have the necessary experience, skills or financial resources to develop their land. Planning permission adds significant value to land, which can then be sold on for a profit. Land promotion agreements provide a solution for landowners who find themselves in this situation, by linking them with the relevant land promotion experts who can help them realise their land’s potential.

In this article, our experienced commercial property solicitors walk you through land promotion agreements. We explain what a land promotion agreement is, how it works and who is involved, highlighting the key benefits and risks associated with entering into a land promotion agreement, as well as what happens when things don’t go according to plan.

What is a land promotion agreement?

A land promotion agreement is a type of legally binding contract between a landowner and a promoter. In this arrangement, the promoter agrees to promote the land for development, for example, securing planning permission, in exchange for a share of the profits once the land is sold. This allows landowners to maximise the value of their land without having to bear the costs and risks associated with securing planning permission.

The land promotion agreement itself will outline the terms of the agreement, including the responsibilities of each party, the conditions for obtaining planning permission, the profit-sharing arrangements, and any other relevant details for the successful promotion and development of the land.

Who are the key parties involved in a land promotion agreement?

Landowner: The individual or entity that owns the land and agrees to enter into the agreement for the promotion of the land.

Promoter: The party that agrees to secure planning permission, market, and ultimately sell the land for development to secure a profit.

Other parties that may be involved in the process (although not party to the land promotion agreement) may include:

Solicitors: Legal representatives for both the landowner and the promoter, who help draft and negotiate the terms of the agreement to ensure the interests of their respective clients are protected.

Planning consultants: Experts who advise on the planning aspects, including obtaining planning permission and navigating any regulatory requirements.

Surveyors: Professionals who assess the value and potential of the land, provide advice on development options, and may be involved in negotiations related to the agreement.

What is the role of a land promoter?

The land promoter’s goal is to maximise the development potential of the land. To do this, the role typically involves some or more of the following:

Identifying potential: The land promoter assesses the land to determine its development potential and feasibility for various types of development, such as residential, commercial, or mixed-use projects.

Securing planning permission: The promoter works to secure planning permission from the local authorities for the proposed development. This involves preparing and submitting planning applications, engaging with stakeholders, and navigating the planning process to obtain approval.

Marketing and sale of land: The promoter will be responsible for marketing the land to potential developers or investors and negotiating the sale of the land once planning permission is secured.

Financial arrangements: The land promoter often enters into a profit-sharing agreement with the landowner, where they share in the profits generated from the sale of the land with the benefit of planning permission. The promoter often covers the full costs associated with securing planning permission and other expenses.

What are the benefits of entering into a land promotion agreement?

Potential for increased land value: By partnering with a promoter, landowners can benefit from an increase in the value of their land, as the promoter aims to secure planning permission for more profitable land uses.

Development risk: Land promoters often take on the financial risk associated with promoting the land for development. This may include costs associated with promoting the land for development, planning applications, surveys, and other expenses. This can be beneficial for landowners who may not have the resources or expertise to navigate the complexities of the planning process, allowing them to benefit financially from the venture without having to incur significant upfront costs.

Access to expertise: Land promoters typically have a wealth of experience in navigating the planning process and securing permissions. By entering into a land promotion agreement, landowners can leverage their expertise to ensure that the land is sold in a way that maximises its value.

Streamlined planning processes: Promoters often have established relationships with local planning authorities and a deep understanding of the planning process. This can help streamline the planning processes associated with developing the land, potentially reducing delays and increasing the likelihood of securing planning permission for the desired development.

Common goal: In a land promotion agreement, the promoter and the landowner share a mutual goal of maximising the selling price. This differs from alternatives such as an option agreement, where the landowner aims for the highest price possible while the developer aims for the lowest price, which may result in prolonged debates.

Enhanced marketability: Working with a land promoter can help enhance the marketability of the land. Land promoters often have established networks and marketing resources that can help attract potential buyers or investors to the development project, ultimately increasing the likelihood of a successful sale.

What are the risks associated with a land promotion agreement?

Delays in planning approval: The process of obtaining planning permission for development projects can be complex and time-consuming. Delays in securing planning approval can impact the timeline for sale, potentially leading to increased costs and a longer wait before realising the value of the land. Although partnering with a land promoter with insight and knowledge of navigating the planning application process can enhance the chances of approval, it is important that landowners manage their expectations.

Changes in market conditions: Market conditions, such as changes in property demand, economic fluctuations, or regulatory shifts, can affect the viability and profitability of a development project. Market dynamics, such as over-saturation of similar developments in the area or an oversupply of properties, can impact the demand and pricing of the land for development. Market risks are outside of the control of the promoter, regardless of their level of experience and previous success.

Disagreements between parties: Differences in expectations, goals, or decision-making processes between the landowner and the developer can lead to disagreements and conflicts during the course of the land promotion agreement. These disagreements can stall progress, disrupt the process, and potentially result in legal disputes that may impact the outcome of the agreement. Due diligence, clear communication, and the inclusion of clear provisions in the land promotion agreement can help address potential challenges.

Potential financial losses: Land promotion agreements typically involve the promoter covering the costs of promoting the land for development. There is a risk that the joint venture may not proceed as planned, resulting in financial losses for the promoter and loss of expectation for landowners. Factors such as unforeseen development challenges, changes in market conditions, or planning permission refusals can heavily impact the outcome of the project.

Legal and contractual risks: Inadequate or unclear contractual agreements, lack of legal protections, or failure to address potential scenarios in the agreement can expose landowners to legal risks. It is crucial for landowners to seek legal advice and ensure that the land promotion agreement is comprehensive, legally sound, and protects their interests in various scenarios.

What happens if the land does not receive planning permission?

It is common for the land promotion agreement to specify that the promoter will use reasonable endeavours to achieve the expected planning permission and confirm whether or not the promoter is expected to appeal any planning refusal. If planning permission cannot be secured within the timeframe allowed, the land promotion agreement terminates with wasted costs borne by the promoter.

How does a land promotion agreement work?

Negotiation and agreement: The process starts off with the landowner and promoter negotiating the key terms of their joint venture, which will then be outlined in the land promotion agreement. This includes the scope of the promotion, the responsibilities of each party, the duration of the agreement, and the financial arrangements.

Assessment and potential: The land promoter will conduct initial research and assessments to determine the development potential of the land. This may involve feasibility studies, surveys of the land and preparing development plans, proposals and strategy. It is common for the land promoter to bear all associated costs and risks during the process, including planning application, survey fees and other expenses.

Planning permission: The promoter takes charge of the planning application, enlisting the support of professional consultants, engineers and designers; progressing it through the various stages of the process; and submitting any appeals.

Marketing and sale: If permission is granted for development, the landowner is required to sell the site and the promoter can then start to market the land to potential buyers or developers. Once a suitable buyer or developer is found and the land is sold, the proceeds are distributed according to the terms of the land promotion agreement.

Key terms in the land promotion agreement

There is a lot at stake when it comes to a land promotion agreement – for both the landowner and promoter. It's important for both parties to seek legal advice from an experienced lawyer to ensure their respective interests are protected. A well-drafted land promotion agreement that addresses all key terms and issues, and clearly defines the rights and obligations of both parties can help avoid any misunderstandings or disputes down the line. Terms you can typically expect to see in a land promotion agreement include:

The basics: The agreement will cover basic formalities such as the identity of the parties involved, and a detailed description of the land subject to the land promotion agreement (including boundaries and relevant features).

Obligations: The agreement should outline the rights and responsibilities of both parties, although the majority of these will fall on the promoter as the actioning party in terms of marketing, obtaining planning permission, and promoting the land for development. The landowner's obligations can include providing necessary details about the land, cooperating with the promoter, and granting exclusivity to the promoter.

Promotion period: The promotion agreement should specify a clear and realistic timeframe for the promoter to perform their obligations and get through the planning process. Land promotion agreements are not short or quick arrangements – some can have a lifespan of up to ten years. What is important is to set clear and achievable milestones, as well as contingencies if things don’t go according to plan (for eg, submitting an appeal if planning permission is rejected first time round).

Profit sharing: This is a key clause and the main incentive for the land promoter. It is important to clearly define how profits from the development of the land will be shared between the landowner and the promoter, whether this will be a fixed fee or percentage, and detail who is responsible for covering any costs and expenses associated with the same (in the majority of cases this will fall on the promoter).  

Termination: If things do not go according to plan, the agreement should contain provisions under which either party can terminate the agreement. This may be because planning permission (including after an appeal) cannot be achieved, the promoter becomes insolvent or breach of obligations under the agreement by either party.

Dispute resolution: It is important that the land promotion agreement specifies the process for resolving any disputes that may arise during the course of the agreement. This can include negotiation, mediation or other alternative dispute resolution mechanisms outside of court. Ideally, litigation should be a last resort.

Confidentiality: This section ensures the confidentiality of any sensitive information, such as financial details or development plans, shared between parties during the agreement.

Profit sharing: Profit sharing percentages can vary depending on the subject land and associated risks of obtaining permission, but you can usually expect anywhere around 80% for the landowner and 20% to the developer. The developer will usually insist on deducting as many of its costs as possible from the sale proceeds before the remaining profit is split.

How to protect the agreement at the Land Registry

The land promotion agreement itself is a contractual personal obligation between the landowner and promoter, in which the landowner agrees to pay the promoter its share of the profits from the sale of land with the benefit of planning permission. This promise to pay does not bind the land itself, nor anyone to whom the landowner may transfer its title in the property, unless adequate protection is put in place. A well-advised promoter will typically seek to protect and secure their interests in the land promotion agreement by:

Restriction: Placing a restriction on the landowner’s title at the Land Registry, which provides that the land cannot be transferred and registered to a new owner without the promoter’s consent. The promoter will only give its consent if the new owner enters into a direct covenant with the promoter to comply with the obligations under the land promotion agreement (ie to pay the promoter on the sale of the land to a third party with the benefit of planning permission). The restriction is usually released once the agreement is fulfilled / or terminates.

Mortgage or charge: The Promoter could place a legal charge against the landowner’s property title at the Land Registry. Promoters often seek to do this to protect their interests in the event the landowner breaches its obligations under the land promotion agreement – the promoter could then enforce the security, sell the land and recover its costs from the proceeds of sale. It is important that any legal charge created and secured on the landowner’s title clearly states a redemption date or trigger to release the charge, including termination or satisfaction of the land promotion agreement.  The downside to this method is that it is likely to be an issue for any lender that already has a first charge on the landowner’s title.

Other methods of securing payment to the promoter under a land promotion agreement include:

Bond or guarantee: The landowner may provide a third-party guarantee as security for the payment of the promoter's share. If the landowner fails to fulfil its contractual obligation to pay the promoter's share, the promoter can seek recourse from the guarantor.

Call option: The landowner could grant an option to the promoter purely as a vehicle for securing payment. This gives the promoter peace of mind knowing they could call upon the option to trigger the sale of the land and recover their share from the proceeds of sale, if necessary. The option can be protected as an agreed or unilateral notice on the landowner’s title.

Can a land promotion agreement be assigned to another party?

It depends on the specific terms and conditions laid out in the agreement itself. In some cases, land promotion agreements may include clauses that prohibit or restrict the assignment or transfer of the agreement without the consent of all parties involved. The agreement may also specify certain conditions that need to be met before the assignment can take place, such as the new party meeting certain qualifications or providing financial guarantees.

Can a landowner terminate or amend a land promotion agreement?

The ability of a landowner to terminate or amend a land promotion agreement will depend on the specific terms and conditions outlined in the agreement itself. The first place to turn to is the termination provisions that detail the circumstances under which either party can terminate the agreement. This may include failure to meet certain obligations, breach of contract, or other specified events, such as insolvency. It is important that the landowner follows any specific steps, notices and time periods specified for termination. With amendments, if both parties are in agreement or consent to the changes then variations can be made. It is rare for an agreement to allow unilateral amendments.

Alternatives to a land promotion agreement

Option agreements: An option agreement is a legal contract between a landowner and a potential buyer or developer that grants the buyer the right to purchase the property within a specified time frame, which can be anywhere from 6 months – 10 years. The buyer usually pays an option fee to the landowner in exchange for this right, which typically gives them the flexibility to decide whether or not to proceed with the purchase based on factors such as obtaining planning permission or securing finance. The price which the developer pays on the exercise of the option can be a predetermined fixed amount or determined at the time planning permission is obtained based on the market value of the land with the benefit of planning permission. Unlike land promotion agreements, where there is a shared interest for both the land promoter and owner to maximise the price / value of the land in order to share in the profits; in an option agreement the developer will be conscious to minimise the price paid to reduce its costs on purchase. Arguably this misalignment of interests can leave parties at loggerheads and land promotion agreements are often seen as a more collaborative approach, particularly as the landowner is more involved in the planning process in comparison to option agreements, where the developer wants to retain as much control as possible.

Option agreements may lead to the landowner receiving a comparatively lesser price for the land, than had it been put for sale on the open market for competitive offers. The other key difference between an option agreement and land promotion agreement is that the landowner is typically bound to sell their land once planning permission is secured, whereas the buyer / developer in an option agreement, may or may not choose to proceed. This uncertainty as to whether the land will sell or not may not appeal to some landowners who find themselves tied into an option agreement but cannot dispose of the land otherwise. The option fee paid by the developer to secure the right may make this worthwhile.

Conditional contracts: Conditional contracts are similar to option agreements but with more specific conditions / a binding commitment attached to the purchase of the property. In a conditional contract, the sale of the property is contingent upon the fulfilment of certain conditions, such as obtaining planning permission or meeting specific development requirements. If the conditions are met within the agreed-upon timeframe, the sale will proceed. Conditional contracts provide a level of certainty for both parties involved in the transaction. They are often more timely and costly to negotiate and agree - it is essential that the conditions are carefully worded as any ambiguity can lead to disputes further down the line as to whether certain conditions have been fulfilled. Any discretion or subjectivity in this regard may result in the developer seeking to renegotiate or terminate the deal should the planning consent not be to their satisfaction, or for other commercial reasons.

Preemption agreements: In a pre-emption agreement, the seller gets to decide whether to sell the land. In this sense, it is almost like the reverse of an option agreement. If the seller chooses to sell, they must first offer the land to the buyer during the period specified in the agreement, which will outline a specific timeline for issuing offers and accepting them. If the buyer does not accept the offer within the agreed period, the seller is then free to sell the land to another buyer at the same or a higher price.

Collaboration agreements: Collaboration agreements can involve multiple parties, such as landowners, developers, investors, and other stakeholders, coming together to collaborate on a development project. These agreements outline the responsibilities, rights, and obligations of each party involved in the project, including the sharing of costs, risks, and profits. Collaboration agreements are beneficial for pooling resources, expertise, and capital to undertake larger and more complex development projects that may not be feasible otherwise.

Each of these alternatives offers a different approach to land development, with their unique features, risks and benefits. It's important to seek legal advice from experienced lawyers to understand which structure is most suitable for your specific circumstances and objectives.  

Summary

Entering into a land development agreement can be an attractive and lucrative opportunity for land lowers to unlock the development potential of their land, increase its value, and mitigate some of the risks and challenges associated with the planning application process. It provides a mutually beneficial arrangement to access the resources, expertise and connections of the promoter; facilitate the successful delivery of the development project; and share in the profits.

If you are thinking about entering into a land promotion agreement, it is crucial to get expert legal advice from an experienced commercial property lawyer to protect your commercial interests, which may involve considering alternative structures that may be more suitable to your objectives.