Property: What are Promotion Agreements for Developers and Landowners?

 

Promotion Agreements

Under the terms of a Promotion Agreement, a Developer (“Promoter”) agrees to promote the Landowner’s Land through the planning process, in order to ultimately secure planning permission and the subsequent sale of the Land to a Third Party. The Landowner will be compelled to sell the promoted Land to the Third Party, and the net proceeds from the sale will be split between the Landowner and the Promoter in accordance with the proportions agreed within the Promotion Agreement.  The benefit of this type of agreement is that the Landowner has somebody with the right experience and knowledge to promote the Land and assist in achieving its highest value, whilst the Promoter benefits from being able to promote the land and obtain a future financial gain, without having the financial burden of purchasing the Land themselves.

Things to consider when negotiating a Promotion Agreement

Whilst a Promotion Agreement appears to be mutually beneficial to both the Landowner and the Promoter, there are many factors that must be considered when negotiating a Promotion Agreement, such as:

Promotion Costs

• Who shall bear the costs of the planning applications and all other costs involved in promoting the land?

• Landowners will often seek to cap these costs.

Promotion Period

• This is particularly relevant for the Landowner, as during this period they will not be permitted to dispose of the Land to anybody else and would therefore not want to be tied into an overly long promotion period.

How the Land should be Promoted

• Both the Landowner and Promoter should discuss whether it is most beneficial to promote the Land as one piece to be sold to a single purchaser, or whether it would be financially beneficial to split the Land up and deal with multiple purchasers.

• The Landowner and Promoter should also discuss the level of input that the Landowner shall have in the promoting of the Land, especially in relation to any planning appeals or conditions that are attached to any planning applications.

The Land to be sold

• The Landowner may wish to retain a parcel of land for their own use, or a ransom strip to prohibit any future development. The Landowner and Promoter should discuss the extend of the Land to be sold in detail, and ensure that this is made clear in the Promotion Agreement.
  
  

Sales

• A prudent Landowner would consider any necessary safeguards to a sale, including a minimum price that must be achieved for them to be legally compelled to sell the Land to the Third Party.

• The Landowner and Promoter should also discuss which agent which will acting on the sale of the Land to the Third Party.

 

How the Sales Proceeds shall be Divided

• Typically, the sales proceeds will be divided between the Landowner and the Promoter as a percentage, with the Promoter also being reimbursed for their promotion costs too.

• If the Promoter is to not be repaid for their promotion costs, they will often seek to be entitled to a slightly higher percentage of the sales proceeds.

 

Key Points

When considering entering into a Promotion Agreement, it is imperative that both parties obtain the correct advice from the outset of the transaction – including the tax implications of entering into the Agreement. 

Our Commercial Team is able to work on the transaction alongside fellow professionals and will structure the transaction in the best way possible to suit your needs. If you are considering entering into a Promotion Agreement, get in contact with our Commercial Team today.

Contact Us here for more information or assistance

Dylan Mann, Commercial Property
Lawson West Solicitors, Leicester

Our lawyers have years of experience dealing with Promotion Agreements and work closely with other professionals to make sure the transaction is structured in the best possible way for Landowner or Developer. 

This article is not intended to be legal advice and cannot be relied upon or applied to any set of circumstances. For further guidance, please contact Lawson West Solicitors Limited.

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