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Planning Promotion Agreements

Napthens - February 22nd 2017

With the Government committed to providing more housing and a relaxation in local planning laws, our team is seeing an increasing trend in the use of Planning Promotion Agreements.

How does a Planning Promotion Agreement work?

Planning Promotion Agreements are often used where a developer or promoter agree to apply for planning permission for residential and/or commercial development on a land owner’s land.

The developer or land promoter will typically fund the initial planning and marketing costs. If planning permission is not obtained by a certain date, the Promotion Agreement usually terminates and the promoter’s costs are not reimbursed. If planning permission is obtained, the land is sold and the promoter’s costs are reimbursed to the promoter from the gross sale proceeds. The promoter will then normally receive a proportion of the net sale proceeds according to the level of risk.

The Promotion Agreement often contains a list of objectives to maximise the market value of the land and a requirement that the promoter submits the planning application at the earliest opportunity, once pre-approved by the land owner. The promoter funds the planning process, thereby removing the risk for the land owner. They then both share the increase in the value of the land if planning permission is obtained.

What is the benefit ?

A pre-determined strategy is often set out in the Promotion Agreement to market the sale of the land if planning permission is obtained. As the promoter will take a share of the net proceeds, the land owner and promoter have a common goal - keep costs to a minimum, and maximise the net sale proceeds. This is often seen as an advantage over the more conventional Option Agreement where there is often a conflict of interest at the land valuation stage with the land owner wanting the highest price for the land and the developer wanting to pay the lowest price possible.

The use of Promotion Agreements does not eliminate all risks but there are ways to protect the parties and reduce their risk, such as incorporating a cap on promoter costs and having a minimum purchase price.

Our commercial property team has vast experience in acting for both land owners and promoters. If you have any questions on this topic or would like to discuss further, with our extensive knowledge and expertise in this area we are able to guide you through the whole process.