Business » Commercial Property Solicitors » Developments and Development Agreements
There are many types of site acquisition, development, and disposal transactions. Regardless of the size or type of development, a developer will require a broad range of legal advice to ensure successful delivery of the scheme from heads of the agreement through to plot disposal.
Contact our Commercial Property Team at Taylor Emmet Solicitors
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Our team provides skilled and commercial advice across all sectors from smaller retail transactions to large commercial developments. We can help with option agreements or conditional contracts to get you on-site to carry out investigations before you commit to your purchase. We can also advise on the alternative strategy of Promotion Agreements.
We can put in place Deeds of Easements to cover rights benefiting the land.
Once on-site, we can also help with agreements with statutory providers (e.g. the local highways department or water providers), and can help settle planning agreements with the local council. We have substantial experience also in drafting, negotiating and advising upon all forms of construction documentation and procurement (including building contracts, bonds, warranties, parent company guarantees and professional team appointments).
Once the development is underway, we also have facilities to put together your plot sales contract pack, plus a dedicated plot sales team to help with sale of the plots.
Blog: Deeds of Easement FAQs
An easement is a right to use land belonging to a third party in a particular way or to prevent the owner of that land from using it in a certain manner. An example of an easement is a right of way.
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Promotion Agreements
It can be hard for developers to access bank lending to finance the acquisition of development sites. This makes it particularly difficult for those looking at long-term development opportunities.
Historically, option agreements and contracts conditional on planning consent have been the usual means by which developers acquire and put together development sites. This is unlikely to change for sites that have good short-term planning potential and proven pre-let opportunities. But, for sites where a longer-term plan is needed, a promotion agreement can be a way to promote and develop the land over the long term without having to finance the actual purchase, making it a much more viable prospect.
How it works
How it Works
Take, for example, a developer who identifies a site that has long-term potential for industrial or mixed-use development. Rather than buying it up front, or taking an option to buy once planning is granted, he enters into a promotion agreement with the land owner. A small premium will usually be paid to the owner on completion of the agreement. Thereafter, as with a conditional contract, the agreement will place obligations on the developer to do his best to secure planning consent for the site. Once consent has been granted, the developer will not have to buy the property but instead will market it. Once a sale is completed, the proceeds (less the developer’s costs of securing planning consent and the initial promotion agreement premium paid by the developer) will be shared between developer and land owner in percentages that reflect the value of their contributions.
The promotion agreement can be tailored to fit the requirements of the parties. For example it may require the developer to carry out infrastructure works so as to https://www.tayloremmet.co.uk/wp-admin/profile.phpmaximise the market value. The developer may also be granted a right of first refusal to acquire the land (possibly at a discounted rate to open market value) once planning has been granted before it is put on the open market for sale.
The Advantage
The Advantage
The obvious advantage to the developer under a promotion agreement is that his entry costs to the transaction are significantly reduced. He does not have to buy the property but will share in the uplift in value on sale. He will still have to fund the planning costs and have the expertise to obtain planning permission. From the land owner’s perspective, a promotion agreement can be a more lucrative way of proceeding since the value of the property will be determined by an actual sale rather than a hypothetical market valuation obtained through an option agreement. The property will be sold at full market value rather than at a potential discount, as is often the case under an option agreement.
The Risk
The Risk
Promotion agreements are not risk-free for a developer. The fact that he does not buy the land has disadvantages. The only security he has under a promotion agreement is his contract with the land owner. He will need to carefully consider how to protect the significant costs he will incur on any infrastructure works or planning costs. If the land owner defaults, the developer will have contractual remedies but he should probably consider taking further security, such as a legal charge over the land. Also with a promotion agreement a profit share will always be agreed between owner and developer. Therefore, it is likely that the developer will end up giving away more profit than he would otherwise realise had he bought the land following the grant of planning permission under an option or conditional contract. He will need to weigh up the advantages of saving on entry level costs by not having to finance the acquisition of the land against the level of profit he may relinquish at the end of the transaction by entering into a profit share arrangement.
Promotion agreements can offer a relatively inexpensive flexible and innovative way for the smaller developer to realise value and obtain profit from long-term strategic developments.
Blog: Options Agreements: 10 Key Issues
An option agreement is a way for landowners to achieve the increase in land values that is achieved through development without risking the substantial cost of obtaining planning permission. Without planning permission the current use of the land can’t be lawfully changed to enable the development to take place.
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