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Option Agreement or Promotion Agreement?
Whilst an Option Agreement can offer a simpler process for developers, Promotion Agreements are an alternative where the land owner wishes to have more involvement and not just sit behind the scenes wondering if the developer will actually exercise the option to buy.
In a Promotion Agreement, the developer will apply for the planning permission – and if successful agrees to promote the land for development. This will include marketing the land to try and achieve the best possible price.
The developer meets the costs associated with the planning application and subsequent marketing and so there is an advantage to a landowner who does not have the resources, time or expertise to maximise the site.
There are risks for developers because ordinarily the developer will only benefit if planning is granted and a suitable buyer can be found. In these circumstances, the developer will receive a proportion of the sale proceeds after costs have been deducted and this includes the expenses paid by the developer in obtaining permission and promoting the site.
For expert advice on Option and Promotion Agreements please do not hesitate to give one of our friendly team call at either our Stafford office on 01785 252377 or Stoke on Trent office on 01782 813315.
An advantage to both developer and landowner in proceeding by way of a Promotion Agreement, is that both parties have a common interest – the ultimate sale of the land at the highest price achievable in the open market. The developer never actually owns the land and this can also have tax and other benefits. However, there can also be differences of opinion as to who leads on the marketing of the land and agreeing the ultimate buyer and price.
A landowner may not be aware of the VAT implications with regard to Promotion Agreements, and so it is important the pros and cons of entering into a Promotion Agreement are fully discussed.
From a developer’s perspective, they may find a Promotion Agreement does not give them the freedom they would have under an Option Agreement as they can be prescriptive and onerous in the developer's obligations.
Whether you are landowner or a developer, each transaction and situation is completely bespoke and unique and so we advise our landowner and developer clients to consider the pros and cons of an Option Agreement versus a Promotion Agreement before making a final decision.