In his latest article Chris Waterhouse, a member of our Development & Strategic Projects team, explores the use of promotion agreements and how they can help unlock the potential value in surplus land.

Where a landowner wants to secure planning permission for development of land, they will often choose a land promotion agreement to bring about that process.

In these cases, the landowner engages an experienced promoter who, in effect, takes on the ‘hard work’ of the process. The promoter seeks planning permission at their own cost but, unlike an option, with a promotion agreement, typically, the promoter has no right to buy the property after securing planning permission.

In a standard promotion agreement, the promoter is responsible for using their skill and experience to secure the required planning permission and then to market the land for sale to an independent third party.

On day one, the landowner and the promoter agree parameters for the process, defining what the promoter is and is not required to do, and they also agree a strategy for maximising the value of the land.

Put simply, the promotion agreement will provide that, on completion of a successful sale, the promoter will be paid a fee for their input and services, usually calculated as a percentage of the sale proceeds, plus reimbursement of at least some, possibly all, of the costs that the promoter has incurred in securing the planning permission.

In that way,  the interests of the landowner and the promoter are more aligned on the project – the landowner benefits from the expertise of the promoter and both parties share in the ultimate success of the project. The more successful the project, the greater the benefits each of them achieves.

There are some issues of sensitivity for each party, and these include:

• upfront, the promoter will bear the costs of promotion through the planning process, which may include work to get the land allocated for the required purpose in an emerging local plan – these costs will be significant

• the landowner needs to be certain that the promoter has the competence, contacts and financial resources to deliver through the process – the landowner needs to consider the promoter’s track record

• the interests of the landowner and the promoter begin to diverge slightly when, planning permission having been obtained, the marketing process begins – at that stage, the promoter may want to be more flexible on accepting offers, to expedite the process of being paid their entitlement

• the promoter incurs considerable expense “up front” and may want to secure their entitlement by way of a legal charge – however, the landowner may feel that this puts too much power in the hands of the promoter

• VAT has the potential to cause complications because the payment which the landowner makes to the promoter will be subject to VAT and, if the landowner wants to be able to recover that VAT, the landowner will have needed to have opted to tax the land for VAT

• although both parties will assume that the project will be successful, they should also contemplate an exit strategy if the project fails – this strategy needs to address timing, disputed failure and abortive costs

Negotiating promotion agreements forms a typical part of Chris’s work in our Development & Strategic Projects team.

If our specialist experience in this area can assist you and your business, please talk to us today by calling 01482 325242 or e-mail Chris on: chris.waterhouse@andrewjackson.co.uk