Promotion agreements became mainstream after the 2008 financial crash, for a while leaving the option agreement as an endangered species. Why? Development projects had come to sudden halts as the banks shut off or seriously restricted their funding, sometimes overnight.
Re-valuation of development projects across the board, sometimes by more than 75%, resulted in immediate cash calls on developers at the same time as house prices crashed. Things were grim in a developer’s world. Rather than flick elastic bands at each other across the office desks whilst the storm passed through, developers turned their attention to longer term planning gain projects. They did not want or have the cash to tie up in buying land. However, many developers had time, planning expertise, underused employees and a willingness to take on commercial risk. At the same time, landowners had the land with development potential but not the appetite for risk or knowledge of the planning system. Out of these circumstances promotion agreements became increasingly common.
The promotion agreement is at its simplest a contract where the developer agrees to promote the property, paying the promotion costs itself. If it is successful the landowner is then obliged to sell the property, paying the promoter a fee for doing so. Planning promotion projects, as anyone who has been involved in one will know, are not quick wins. A quick project might take two to three years, with long-term projects often taking ten, fifteen or twenty years. In the early days of the rise of the promotion agreement there was sometimes a sense that the promoter should be left to promote often with little engagement with the landowner. The agreement went in the desk drawer, only to be pulled out after a few years when it became time to calculate who got what out of a sale. “We’ve signed a promotion agreement, got to leave them to get on with it!”
Whilst the cogs of the planning system have slowly turned, a decade has passed and the generational handovers within landowner’s families have continued. Landowning businesses and their family managers and directors are increasingly diversified with a far wider skill set. This combines with many promotion agreements reaching or being close to reaching their conclusion, either as a whole or as initial phases are sold. Landowners are receiving significant cash receipts from successful promotions. In some cases promotion agreements are being extended or varied as the developments mature and new opportunities are identified. In others, landowners who have been stuck with a promoter they signed up with in the early days are looking at other solutions to unlock their land with development potential.
A well-negotiated promotion agreement provides for a level of regular reporting and updating by the promoter. Landowners are involved at key milestones, such as agreeing planning strategy, approving the planning application, and approving the terms of a s106 agreement. Many landowners have used these milestones as an opportunity to question a promoter and learn. They have seen that a promotion is not just about focussing on what can fit within a red line on a plan. It requires a much wider understanding of the possible development within the red line, in the context of its wider community, local authority housing numbers, availability and sufficient capacity of services such as gas, electricity, broadband, local community requirements and local employment.
Taking their experience gained by observing and engaging with their promoter, as their land has been through the often-arduous planning journey, and combining it with significant receipts from successful initial promotions, we are seeing a new generation of landowners wanting to play an enhanced role in the promotion process. Not just selling on receipt of a planning permission but wanting to work with a housebuilder and develop out the project, or undertaking the next promotion themselves, either gearing up their internal teams with professional expertise or with external consultants.
As with all ventures careful attention needs to be given to how this is structured from a tax perspective. However from a strategic land lawyer’s point of view I admire the increasing enterprise demonstrated by those active landowners who have learned and want to apply their development knowledge. It is not however a journey for the shallow-pocketed or faint-hearted. Many landowners will prefer to put themselves in the hands of a promoter or deal directly with a housebuilder. In Birketts’ Strategic Land Team we are always happy to discuss the options open to landowners and then to help you negotiate whatever form of agreement you and your land agent decide on.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at January 2022.