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What is a Promotion Agreement?

A promotion agreement is a legally binding contract between a landowner and a developer.  It allows landowners to leverage a developer’s expertise to navigate the complexities of planning and maximise returns on their property.

Promotion agreements are often used in residential developments and are particularly suitable for complex planning situations and longer-term projects.

  1. Developer’s Role:  The developer is responsible for promoting the land under the Local Development Plan (LDP) framework. The agreement will outline the duration within which the developer must obtain planning permission. They are the ones who apply for planning permission and are responsible for the expenses incurred in obtaining planning permission; however, the costs are limited to those that are reasonable.
  2. Landowner’s Obligations:  After obtaining planning permission, the developer markets the land in conjunction with the landowner’s agent on the open market. The landowner is then obliged to sell the land if a price over an agreed threshold is achieved.  Once the sale is completed, the developer will receive a fee which is typically a percentage of the net sale proceeds after deduction of the promotion costs.
  3. Advantages for Landowners:  Landowners benefit from the developer’s experience and resources, and planning costs and risks are borne by the developer.
  4. Considerations:  Landowners should be prepared for the sale once a buyer is secured. Vacant possession and third-party rights need careful consideration and understanding the tax implications of the agreement is essential for the landowner.

Benefits and Risks of Promotion Agreements:

Promotion agreements offer landowners the potential for high returns while minimising risks, but they come with specific obligations and considerations.  Landowners need to weigh these factors carefully before entering into such agreements.

Benefits:

  1. Maximised Land ValuePartnering with a developer can help landowners achieve higher sale prices by maximising land value with planning permission and marketing.
  2. Risk Mitigation:  Landowners transfer the planning costs and risks to the developer.  If planning permission is not granted, the landowner is not financially liable for the expenses incurred during the promotion period.
  3. Access to Expertise:  Developers have experience in navigating the complexities of planning regulations, which benefits the landowner from the developer’s knowledge and resources.

Risks:

  1. Onward Sale Obligation:  Once a buyer is secured, the landowner is obliged to sell the land if a price is above an agreed threshold and they should be prepared for the sale process.
  2. Third-Party Rights and Vacant Possession:  Landowners need to consider any existing third-party rights (such as leases or licenses) on the land.  Likewise, vacant possession requirements may impact the landowner’s ability to sell promptly.
  3. Tax Implications:  Landowners should be aware of the tax implications associated with a promotion agreement, including capital gains tax, stamp duty, and other taxes.

 

For advice on Promotion Agreements please contact:

Martin Jordan, Head of Development

Matt Gill, Development Director

Rhega-Mai Ward, Associate Director

Posted on 15 May 2024
by Matt Gill

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Categories: News

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