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Latest News

October 17
Development Opportunities: The Right Strategy

 

With the seemingly increasing number of development opportunities, we find that many of our landowner clients are being approached for either small scale or larger development projects (whether for residential, commercial or renewable projects). But what agreements are currently fashionable?

Two forms of Agreement that are frequently proposed are:

  • Promotion Agreements; and
  • Option Agreements

Firstly, a Promotion Agreement is effectively where a ‘promoter’ obtains planning permission for the development of the landowner’s land which is then sold on the open market. The promoter will then take an agreed percentage of the sale proceeds.

Under an Option Agreement a ‘developer’ will obtain a planning permission for the development of the landowner’s land and will then have the exclusive right to purchase the land at a price to be determined by the provisions of the Option Agreement (this is usually a discounted price i.e. below the market value).

The current market conditions seem to indicate an increase in the use of Promotion Agreements by developers. These are similar, in certain aspects, to Option Agreements, in that the promoter has no obligation to purchase the land. Rather they have the ability to obtain a planning consent for the land and then (usually with the landowner’s agent) market the land for sale.

The Landowner must ensure that the following points are covered in the Agreement:

wind-turbine-341312_1920Below is a list of some points (although this is certainly not exhaustive and of course each matter will depend on its own circumstances) which the landowner should consider:

  • That the developer will provide a full embracing indemnity for any damage caused to the property as a result of any site investigations and works carried out during the Promotion Period.
  • That the landowner is not under any obligation to sell the land on the open market if an agreed minimum guaranteed value is not achieved.
  • That the promoter will agree to insert a provision whereby they agree to market only at a time of agreed optimum sale prospects.
  • That appropriate provisions are incorporated within the Agreement regarding tax and, in particular, the VAT status of the land.
  • That the landowner has some ability to limit the Promotion Costs incurred by the promoter at the outset, so that if the agreed sum is going to be exceeded then the promoter will need the landowner’s consent to any increase in the costs of promoting the land.

These are just some of the points which need to be considered. Ultimately, we strongly advise that detailed Heads of Terms are agreed at the outset and for these to be reviewed by both the landowner’s appointed agent, their solicitor and also their accountant. We simply cannot stress enough how important it is to make sure that landowners do not enter into any initial agreements with developers, such as an Exclusivity Agreement, without first referring the document to their legal adviser. This is to make sure they are not committing themselves unnecessarily to any onerous obligations or long-term commitments.

We at Arnold Thomson have a great deal of experience with commercial development projects. If you wish to discuss any matter relating to the above then do please contact Matt Hawkins or Christine Simkins who will be more than happy to answer any points you wish to raise. Often with such projects this may be the one occasion which the landowner has to realise considerable value for their land. Ultimately, the landowner will want to make sure that they maximise the benefit they will receive from any such opportunities. Therefore, it really is vital that all professional advisers are involved to assist landowners from the very start of the project until its conclusion (as an example, at the end of a project there may be considerations to take into account if the landowner is intending to reinvest the money in land to enable them to apply for rollover relief).