Partner Jane Gunnell, head of our Commercial Property team, provides a summary of development land contracts “subject to planning”.
I own land with a development potential and have been offered a promotion agreement. What does it entail?
The developer will usually “promote” your land by applying for, and hopefully obtaining, planning permission at no cost to you. He will say that you are both on the same side.
Following the grant of planning permission the promoter will normally find a buyer for the land and will deduct from the proceeds of sale a fee in addition to all of the expenses involved in an application for planning permission and sometimes the costs of an appeal, plus the costs of marketing the land.
The developer’s “promoter’s fee” can be between 10% and 20% of the gross sale price. VAT is payable in addition. This will be deducted from the proceeds of sale and you will get what’s left. Sometimes a premium is paid up front which is non-refundable if the project fails, however that is not always the case.
I am a residential developer of sites for between 2 and 10 dwellings. I have identified a brownfield site where I stand a good chance of getting planning permission for 4 houses. I have given the land owner my standard simple form of option agreement. He says he will only do business with me if I sign a binding conditional contract which his solicitor will prepare at my expense. Should I agree?
The answer to this question depends on how likely you are to get a planning permission that you are happy with, and how good your lawyer and surveyor are.
A well-drafted conditional contract can make the chance of securing a sale far more likely than an option agreement, because the buyer can be forced to complete the purchase of the property if the planning permission, as described in the conditional contract, is granted and any other conditions are complied with.
In contrast, an option agreement gives complete control to the developer which means that you cannot be forced to buy the property.
However, even with a conditional contract a well-advised developer will seek to ensure that he has an escape route if changing market conditions will make a proposed development scheme unprofitable.
As always, the well-advised developer or land owner will get a better deal than someone who does not consult professionals with specialist expertise.
You may be interested in attending our development land seminar in Reading on 17 October.
For further information or legal advice, please contact firstname.lastname@example.org or call 0118 951 6800.
This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.