Land Promotion.
When assessing planning applications, in addition to national policy contained within the National Planning Policy Framework (‘NPPF’), Councils use Local Plans (also called ‘Core Strategies’ or ‘Development Plans’) to decide if permission should be granted or not. Local Plans contain a Council’s overall strategic planning framework.
The policies are updated following public consultation where local people (including landowners, developers, and property professionals) can comment on the proposed policies.
Generally the Local Plan is the first part of a Council’s policy. Many Councils also have policies which look specifically at the sites which might be suitable for accommodating the development envisaged in the Local Plan.
In order to boost significantly the supply of housing in the country, Councils are required to demonstrate that there is enough land available in their area to deliver five years worth of housing. This is referred to as ‘housing land supply’ and if a Council has assessed the land in their area and cannot demonstrate a five year supply of suitable land available for housing to satisfy the identified local need, then an application for permission for housing within that Council area will stand a better chance of success.
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Land Promotion is where a landowner seeks to persuade a local planning authority that their land should be allocated for development in its planning policy document/s. It also includes the process whereby permission is sought for development by way of an application. Many landowners instruct planning professionals to deal with this on their behalf, and some enter into legal agreements with ‘Promoters’, who will promote the land for them.
A Promotion Agreement is a legal agreement between a landowner and a Promoter, which will generally oblige the Promoter to do all it can do obtain the most valuable planning permission on the land. Obligations can include a requirement to seek to persuade the Council to allocate the land for development in its policy documents, and to also seek planning permission, and following the allocation or grant of planning permission the land is marketed for sale, with the Promoter taking a share of the proceeds in payment for having secured the enhancement of the value of the land through the allocation/permission.
Initial costs for a landowner are generally limited to a solicitor’s and surveyor’s fees for advising them on the terms of the agreement, and negotiating them on their behalf. Some Promoters will pay those costs, and may also pay the landowner an initial ‘Promotion’ fee as consideration for the owner entering into the agreement. The Promoter will bear the costs of the promotion exercise, with a view to taking proportion of the uplift in the value of the land once the planning permission is granted and the land is sold.
If the promotion efforts are successful and planning permission is granted, the value of the land will almost certainly be increased, and often very substantially, particularly where permission is granted for a large scale housing scheme. The risk and costs are borne by the Promoter initially, whose reward comes once the land is sold.
Under an Option Agreement, a landowner will grant to a Developer an option to buy the land within a fixed timeframe. During that time the Developer will apply for planning permission at their own cost and if permission is granted which is satisfactory to the Developer, they may exercise their option to buy the land. The Option Agreement may set a fixed price or a mechanism by which the price is to be calculated based on the current market conditions. Usually the costs incurred by the Developer in securing the planning permission are deducted from the price paid for the land.
The Developer may pay the landowner an initial option fee and would usually pay a contribution towards their legal and surveyor’s costs of the Option Agreement.
In both cases, the landowner is agreeing to restrict its dealings with the land during the period of the Option or Promotion Agreement.
Under a Promotion Agreement there is a contractual obligation on the landowner to sell the land once the allocation/planning permission has been secured. Under an Option Agreement, there is no guaranteed sale, it is open to the Developer to choose whether or not to exercise its option to buy the land.
The Promotion Agreement can be a more collaborative process whereby the Promoter and the landowner will share in the uplift in value when the land is put onto the open market. The parties therefore have a common goal of maximising the land value.
Under an Option Agreement, whilst the Developer is seeking to secure a suitable planning permission, they will naturally be looking to minimise the price that they pay for the land, rather than maximising the value for the landowner’s benefit (unless the agreement provides for a fixed price).
Both Promotion and Option Agreements have their pros and cons. With an Option, there is an immediate buyer for the land who has invested in its promotion; under a Promotion Agreement a sale must be secured in the open market, at which point the interests of the two parties, which had previously been aligned, may start to conflict, as the Promoter will be keen to recover their investment as quickly as possible, whereas the landowner is likely to want to push for the absolute best price.
Both Option and Promotion Agreements are complex arrangements, and careful drafting is required in order to guard against the many potential pitfalls for both parties.
