Planning Promotional Agreements

Landowners whose land has current or future residential development potential can secure the value in their land in a number of ways. Where the prospect of achieving residential permission is short term, landowners can promote the land themselves through the planning process (and all the costs that this implies) before looking to sell or more likely, they will enter into a conditional sales contract with a developer who will obtain planning permission themselves before completing on the purchase of the land for a previously agreed price.

Where the prospects are less certain and more distant, again a landowner can obtain a level of planning certainty themselves or, in order to pass on the risk of cost outlay, enter into an agreement with a third party who will promote the site at their risk.  These agreements take two main forms:

Option Agreement

This has historically been the way a landowner has promoted their land at no cost to themselves.  A developer will enter into an option to buy their land and will have limited obligations to obtain planning permission. On exercising the option, most likely when planning permission has been obtained by the developer, the developer will pay open market value for the site (often less 5-15%) at the time of the exercising of the option.

Given the difficulty in defining an open market value for development land, and that each development site is different with its own abnormal costs of development, the agreement of the open market value of the site in line with the Option Agreement is difficult and can often lead to dispute and dissatisfaction on the part of the landowner in terms of the amount of money they receive for their land.

Planning Promotional Agreement (PPA)

This is an increasingly popular method of passing on the costs of promotion to a third party but with the advantage that the third party who access a promoter and not a developer will, once planning is achieved, work with the landowner to obtain the best price on the open market for the land thereby removing the need for any determination of open market value at the end of the this way, both the promoter’s and the landowner’s interests are aligned and there is much less opportunity for dispute and a much greater chance of obtaining a good market price for the land at the end of the process.

As with an Option Agreement, the landowner will receive a value which is discounted from the full price as the promoter is paid a fee of between 15% and 20% of the full value.In addition, the costs of promotion incurred by the promoter will be netted off the eventual sales proceeds, should the site eventually be sold.It may be argued therefore that the PPA route is more expensive from a landowner’s perspective but in our experience, the results from the open marketing of a site with full planning permission are such that the landowner is generally financially better off.

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