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:
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:
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).