Promotions Agreements Explained: A Landowners Guide

“A developer has offered me a Promotions Agreement, but what does that actually mean?”

Last week we discussed how the Options Agreement is a type of contract between the landowner and developer that allows the property developer more time to generate value through a planning application, and once planning has been approved, the developer holds the option to buy, but usually not the obligation.

However in today’s blog we will explore the next most commonly used type of contract that has an alternative use; the Promotions Agreement.

What is a Promotions Agreement?

Put simply, a Promotions Agreement is contract between the landowner and the developer or ‘promoter’, where the landowner supplies the land, and the promoter produces a planning application to increase the value of the land through a planning process, however instead of buying the land themselves, the land is sold on the open market to a third party buyer, and both the landowner and ‘promoter’ get a share of the profit.

Why should a landowner use a Promotion?

If you are looking to sell and want the most out of the deal without taking the risk of putting any of your own capital into the planning process, then a promotions agreement might be for you. Having a planning application approved by your local authority is a powerful way of increasing the value of your land, the uplift value can be significantly more that what you originally bought it for!

However getting planning permission is never guaranteed, it’s very risky to put your own capital up front only to find out that it was refused by your local authority. Both the promotions and options agreement allow you as the landowner to supply the land, and let the developer work and risk their capital to secure the planning uplift.

Why might a landowner prefer promotion to an option?

Selling the land on the open market comes with a level of third party uncertainty that may not always align with interests of both parties. You may be a landowner that is happy to sell at a slightly discounted rate to take advantage of a quicker sale, and therefore an Options Agreement may be the better option for you.

Whereas if you are looking to maximize the sale potential rather than locking in a predetermined discounted rate, and are willing to be patient and deal with open market uncertainty, then a promotions agreement may be more appropriate. However the drafting and conditional terms matter enormously, so make sure you understand fully what the deal structure looks like.

What does the promoter actually do?

Once an agreement has been put in place, the developer carries out feasibility studies to understand the site constraints and planning constraints in order for a planning proposal and concept design to be produced. This usually involves various consultants, appointments and pre-application discussions and various investigations in order to build the best possible proposal to put forward for the planning application.

Once the scheme has been granted approval, the developer or specialist promoters team can market and sell the site for both the landowner and developer to take shares in the profit.

How long is the promotion agreement?

There is no set length for a promotions agreement, however a landowner must know that this is a long term agreement. A relatively straightforward site may only require a few years until the point of sale, whereas strategic land through the local plans planning process may require a much longer time period, allowing for multiple planning applications to de-risk the site and bake in uplifted value.

It’s important that the landowner and developer have good communication both verbally and in writing of the contract going forward, as the planning process, especially in the UK; can be a slow and uphill battle.

How is the landowner protected?

Much in the same way as an Options Agreement, a landowner does not need to put up any of their own capital upfront - that is the risk and responsibility of the developer/promoter.

The promoter is also contractually obligated to be actively seeking planning approval and promotion of the site for sale on the open market. They cannot just sit on the agreement and remain idle. It’s worth agreeing on specific milestones for this. Ultimately there should also be a longstop date to trigger termination of the agreement, if there is a situation where milestones are consistently not being met.

Finally there should be a minimum sale price included in the agreement to prevent the land being sold below the valuation threshold. This protects your land from being sold at discounted rates even on the open market.

What are the landowners' risks?

Although the promoter takes on the majority of the risks, the fact of the matter is that landowners are being tied into what may seem like a very long contract. The loss of time can mean far more to some landowners due to life circumstances, aligned goals and unfortunately sometimes even due to death. Being tied up for years in an agreement may not be for you, which is where other agreements may be more attractive options.

Planning permission is never guaranteed. Anyone saying they can one hundred percent guarantee planning is a snake oil salesman and should be avoided, because sometimes reasons outside of our control can result in a refusal. Suppose your neighbour(s) has significant influence, they potentially be a very persuasive factor in the local authority refusing your scheme.

Moreover, the developer could be simply underperforming. This could be due to lack of resources or simply isn’t pursuing the promotion aggressively enough to hit the milestones set out. And therefore your termination rights may kick in.

The landowner must also fully understand the promoters fees and how this may impact the landowners share, as this can be substantial, seeing as the developer will require an incentive and return on their significant investment once a sale has been completed on the open market.

Does your land have development potential?

If you are a landowner who is looking to unlock hidden development value, then make sure to get in touch. Whether you are looking to sell via the open market through the leverage of a promoter, or needing a quicker and more guaranteed sale using a discounted rate using an options agreement, we can help!

We carry out in depth feasibility, massing studies and appraisal using our design-led property development expertise and our understanding in the national planning policy framework, in order for landowners to share in the benefits of planning uplifts.

You supply the land, we supply the expertise, the capital and network. As we are in partnership with BuildUp, our financial backers and network working team; we have highly experienced developers on our side that you can leverage.

Get in touch today by filling out the form below.