Option or promotion agreement – which is best for landowners?
If you have land that is ripe for development, how do you go about ensuring you get the best possible return on its value? If you are not experienced in planning and construction, you are likely to need the expertise of a professional developer to enhance the value of the land. The two most common ways of organising this are via an option or promotion agreement. Each has advantages and risks and expert legal advice is crucial to make the right choice and ensure a well-drafted agreement is drawn up to protect your interests.
‘Whether an option or a promotion agreement is most appropriate will depend on how closely you want to be involved with the process of getting planning and promoting the land’ says Ben Mitchell commercial property solicitor with Parnalls Solicitors. ‘An option agreement leaves the planning and marketing process largely in the hands of the developer. Under a promotion agreement, the landowner is much more hands-on and will know the value of the developed land before agreeing to sell it.’
An option is a contract under which the landowner agrees to sell land to a developer, if the developer chooses to buy it within a fixed option period. The price will either be fixed at the outset or calculated when the developer exercises the option, by reference to the market value of the land at that point. The developer’s right to buy the land will usually be conditional on achieving planning permission or sometimes on completing the development, both of which will enhance the value of the land. Because the ultimate value of the developed land will not be clear when the price is agreed, the option may include provisions regarding overage. These allow the landowner a share in the end value, by requiring the developer to pay a proportion of the uplift in value to the landowner.
Under a promotion agreement, the landowner and developer work together with the shared aim of maximising the land value and achieving a sale. The landowner is not committed to selling the land, so can wait to see how much the planning and promotion process adds to the value before making a decision. The developer will get an agreed share of the eventual sale proceeds, so will share the landowner’s desire to achieve the highest possible price.
The key differences include:
- Landowner involvement – The most obvious difference is the extent to which the landowner is actively involved in the promotion process. Under an option agreement, this is largely contracted-out to the developer, whereas a promotion agreement is much more collaborative.
- Landowner discretion – Once an option is granted, the developer chooses whether or not to buy the land. A promotion agreement leaves this choice of whether to sell with the landowner. If the planning process does not enhance the land value as much as expected, the landowner could choose not to sell at all.
- Relationship between the parties – A well-drafted option agreement will set out each party’s obligations clearly. A promotion agreement may be less precise, because it relies on the parties working together which requires mutual trust and introduces concepts like cooperation and good faith. This leaves more scope for disputes over fair dealing and the parties’ legitimate expectations. One common issue for negotiation is what guarantee the developer will have of some sort of return on its work. Unless the agreement says something different, the landowner could decide to sell the land before planning permission has been granted, so there would be no enhanced value for the developer to share.
Which is best?
The decision will come down to the landowner’s appetite for being involved in the promotion process and the relationship between developer and landowner. An expert lawyer will be able to guide the landowner in making this choice and, crucially, make sure that the formal agreement with the developer reflects accurately what the parties have agreed. Good drafting will help to make the development project a success and avoid profits being wasted on costly disputes.
For further information, please contact Ben Mitchell, Commercial Property Solicitor with Parnalls Solicitors on 01566 772375 or email email@example.com
The contents of this article are for purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.
Not so safe at work - compensation for an accident at work
New organ donation law: giving you control
Running a business from home
Have nude photos of you or your teenager been posted online?
Landowners’ rights and the Electronic Communications Code
Building in your back garden
Christmas is a time for giving (and inheritance planning)
Buying the freehold of your leasehold house
Redeveloping an empty pub for commercial use
Why it takes time to obtain the Grant of Probate
Social Media: The unconscious privacy threat
Is your reputation being threatened?
Making a will after your spouse or partner has died
Interns celebrate completion of internship at solicitors
Selling your home in a flat market, some top tips
Claiming compensation for a serious road traffic accident
New Media and Communications Court list reflects surge in internet defamation claims by Laura Baglow
Has your personal information been shared without your permission?
Planning your escape to the country, what you need to consider – part 2
Government consultation on new national model for shared ownership
Choosing a partnership structure
Planning for what happens when you die by Deborah Adams
Changes to legislation could offer protection for tenants in the private rental sector
Move to the country - Part One
The risks of DIY probate
Will your septic tank still be legal in January?
The death knell for ‘kiss and tell’?
Making a will when you retire
Selling your property at auction
Not looking so good - your guide to compensation for botched non-surgical cosmetic procedures
New threshold of seriousness in defamation proceedings
Legal considerations when building a granny annex
Choosing the right person for your power of attorney
Formal Interviews - Do you need legal representation?
Privacy rights and aerial images
Trustees’ duty to give information to beneficiaries
Five problems with a leasehold property
Taking your first commercial lease
Is your organisation protected from employee social media legal risk?
Have you been targeted by negative social media posts?
Farmers be alert when being inspected
Help for House Sellers?
Don’t let your digital assets end up in a digital grave
Valuing an estate for probate
Development proposals and your local authority search
What can you do if your child is injured in a serious accident
NetRights welcomes new protection for social media users
SHOULD I GET A LAWYER FOR A SPEEDING OFFENCE?
Supreme Court recognises that social media is a “casual medium” in libel battle
Choosing the best conveyancer who is right for you
Making a will after a second or subsequent marriage
Option or promotion agreement – which is best for landowners?
Anonymous pub and restaurant online reviews leave a bad taste
Have you had an accident involving a horse?
Help to Buy – beware of some cracks in the structure
Understanding Lasting Powers of Attorney
Changes to Energy Performance Certificate for Landlords
Had a cycling accident? Your route to obtaining compensation
New year, new home: tips to sell your home in the New Year
Tax Planning for your inheritance
Hearing loss: when your employer may be liable
Buying a home for your retirement, five things you need to consider
Farmers plan to diversify after Brexit
Ministers press ahead with probate fee shake-up - reports BBC News
Botched dental treatment? You may be entitled to compensation
Why a Health and Welfare Power of Attorney is a good idea
Will the new charge on building developments in Cornwall affect you?
Energy Performance Certificates – Do They Matter?
HMRC Challenging Stamp Duty Land Tax Payments
Ben Mitchell qualifies as a solicitor
The potential implications of Brexit on employment law
Appointing a guardian for your children
Houses in multiple occupation – new rules from October 2018
New Agriculture Bill published
Will Brexit affect my pension?
Dreaming of a holiday home? Sort out the legals before putting your feet up
Lasting Power of Attorney by Deborah Adams
Settled status after Brexit by Alexis Hager
How to choose an executor to administer your estate when you die
How overage agreements can boost profits from your land
Top tips for first-time buyers
How Could Brexit Affect My Farm?
Wills & Succession in Spain by Deborah Adams
Brexit – an international and local view by Alexis Hager, Litigation
Capital gains tax - important facts for non-residents of the UK
Buying a home: the importance of making sure the seller is entitled to sell
Changing a will after someone has died: it is possible and it could save you money
Your responsibilities when you have people working in your home
Sad passing of Battle of Britain pilot who served with Parnall family member
Considerations when buying a heritage property
Disciplinary proceedings at work: guide for employers
Employers should have a disciplinary process in place, but just following this may not be enough to avoid falling foul of the law and exposing yourself to the risk of an employment tribunal claim.