In my experience, developers’ appetite for land is undiminished – especially where the local council has no up to date Local Plan or 5 year supply.
Typically, developers offer landowners a development agreement, usually an Option or Promotion Agreement.
Landowners should carefully consider the following:
How long is the agreement?
3, 7, 15 years? There is no set term. But “landbanking” is to be avoided.
3, 7, 15 years? There is no set term. But “landbanking” is to be avoided.
Is there an upfront payment?
Developers will offer a fees or premiums to landowners which the landowner will keep – paid at the outset and for any extension.
Developers will offer a fees or premiums to landowners which the landowner will keep – paid at the outset and for any extension.
Who will pay for all planning costs?
The costs of obtaining planning permission are high. However, developers will agree to pay such costs – and the landowner’s agent and legal fees in preparing the agreement.
The costs of obtaining planning permission are high. However, developers will agree to pay such costs – and the landowner’s agent and legal fees in preparing the agreement.
Maximising land values.
Make sure that the developer is obliged to obtain planning permission that maximises the residential value. This is why minimum housing densities or land values are often used.
Make sure that the developer is obliged to obtain planning permission that maximises the residential value. This is why minimum housing densities or land values are often used.
At what value will the land be sold?
If an option agreement, a developer will buy the land, discounting the value by a percentage to give the developer a profit and leaving the landowner between 80-90% of the agreed value.
If an option agreement, a developer will buy the land, discounting the value by a percentage to give the developer a profit and leaving the landowner between 80-90% of the agreed value.
With promotion agreements, the land is sold on the open market and the promoter receives a percentage of the net proceeds, leaving the landowner between 80-90% of proceeds. The significant benefit to the landowner is that the promoter’s interests are aligned with theirs – namely to maximise the price which will be shared.
So does it matter if it’s an option or promotion agreement?
Yes - potentially. Land sold via an option cannot be exposed to competitive bids from rival developers – hence values can be lower. Promotion agreements allow open market exposure when the land is sold and give reassurance that the best price has been secured.
Yes - potentially. Land sold via an option cannot be exposed to competitive bids from rival developers – hence values can be lower. 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, please contact us for an impartial opinion.
Nick Harper FAAV MRICS is Managing Director of Hawkspur – which specialises in option and promotion agreements.
Contact Nick on 07528 089419
