Landowners approached by developers: Option or Promotion Agreement?

(Picture: iStock)

Developers’ appetite for land is undiminished. Typically, developers offer landowners an Option or Promotion Agreement to promote their land. Beware of the following:

• How long is the agreement? Usually between 3-15 years. Short is best.

• Is there an upfront payment? Developers will offer a premium to landowners which the landowner will keep – paid at the outset and for any extension.

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  Nick Harper FAAV MRICS, managing director of Hawkspur

  Who will pay for all planning costs? Developers should pay such costs (which are high) – and the landowner’s agent and legal fees in preparing the agreement.

• Maximising land values. The developer should be obliged to maximise the residential value. Minimum housing densities or land values are recommended.

• At what value will the land be sold?
  • Option agreements – a developer will buy the land, discounting the value to give the developer a profit and leaving the landowner between 80-90% of the agreed value.
  • Promotion agreements – the land is sold on the open market and the promoter receives a percentage of the proceeds, leaving the landowner between 80-90% of proceeds. The benefit is that both parties’ interests are aligned – to maximise the price which will be shared.

• So does it matter if it’s an option or promotion agreement? In a word, yes. Land sold via an option cannot be exposed to competitive bids from rival developers. Promotion agreements allow open market exposure when the land is sold and give reassurance that the best price has been secured.

If your land has development potential or you have been approached by a developer offering an option or promotion agreement, contact Hawkspur for an impartial opinion.
 
Contact Nick Harper by email nickharper@hawkspur.co.uk, or visit the website HERE.