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The Key Differences Between Option Agreements, Agreements for Sale Subject to Planning and Promotion Agreements

If you are considering selling part of your land to a developer, then you may have heard mention of each of these agreements. But, it may not be immediately clear to you the differences between each. 

Option Agreements

There are two types of option agreements: a put option and a call option. A put option agreement enables a landowner to require a developer to purchase land from it at a pre-determined price; this type of option is not common. In this post we will focus our attention on the call option. 

A call option enables a developer to require a landowner to sell land to it.

  • Sale Price: This usually comprises an agreed price, index linked for the period between the date of the option and completion of the sale, together with (if applicable) a share in the enhanced value of the land in consequence of the grant of a planning permission during the term of the option agreement.

  • Conditionality: Where the parties have agreed that the landowner is to share in the enhanced value of the land resultant from the grant of a planning permission, the agreement will likely require the developer to have planning permission before it exercises its option to purchase the land.

  • Term of Agreement: The developer has the right to acquire the land during a set option period. This is typically 5 to 10 years. During this period the landowner is prevented from disposing of its land to a third party and as such the land is effectively sterilised. This may not be of concern to a landowner who is in no hurry to sell the land and where the option fee is a sufficient windfall to justify the sterilisation of the land.

  • Option Fee: The developer pays the landowner an option fee in return for the call option.

  • Developer's Flexibility: The developer is not obliged to acquire the land nor progress a planning application. The developer has the ultimate flexibility. This is particularly useful to a developer, who is looking to assemble a site and acquire planning permission across a number of parcels of land, each in different ownerships.

  • Planning Costs: The developer will be responsible for the planning costs.

  • Landowner's Control: This is limited. If the planning permission does not enhance the market value to the level hoped by the landowner, there is no ability for the landowner to walk away from the deal and it will be obliged to sell the land if the option is exercised by the developer.

Agreements for Sale Subject to Planning

An agreement for sale subject to planning, is a contract between the landowner and the developer that if satisfactory planning permission is secured, the developer will purchase the property.

  • Sale Price: This usually comprises an agreed price, which will factor in the anticipated enhanced value of the land having the benefit of a satisfactory planning permission; as against the planning risk being taken by the developer.

  • Conditionality: Completion of the sale of the land to the developer is conditional on satisfactory planning permission being secured. The agreement will contain details of which planning conditions would mean that the planning permission would not be satisfactory. Where a planning permission is not satisfactory, the agreement will detail whether it should be appealed or whether this gives rise to a right for either party to terminate the agreement.

  • Term of Agreement: If satisfactory planning permission is not forthcoming within a specified time period (typically 1 to 2 years), then the landowner and the developer will each have the right to terminate the agreement for sale and walk away from the deal.

  • Deposit: A 10% deposit is typically payable to the landowner on exchange of the agreement; however, this is normally refundable if the agreement is terminated where satisfactory planning permission has not been obtained in the agreed timescales.

  • Developer's Flexibility: The developer will be obliged to progress a planning application and to acquire the land if satisfactory planning permission is granted.

  • Planning Costs: The developer will be responsible for the planning costs.

  • Landowner's Control: The landowner has certainty that if satisfactory planning permission is obtained, then the sale will go ahead. It will usually also have certainty of the sale price before it is contractually bound to sell the land. 

Promotion Agreements

A promotion agreement is a contract between a land promoter (who is usually not a developer, but who will be experienced in procuring planning permission) and a landowner. The land promoter agrees with the landowner to apply for planning permission for the land and once planning permission has been secured, to market the land for sale. The landowner will agree with the promoter to sell the land to a developer identified by the land promoter. 

  • Sale Price: The land promoter will market the land for sale on the open market and the sale price will be that offered by the highest bidder. The parties will often agree a minimum price for the land; such that if no bidder offers at or above that price, there is no obligation on the landowner to sell the land.

  • Conditionality: If the land promoter does not successfully secure planning permission for the land, then it will not be able to progress to marketing the land for sale.

  • Term of Agreement: The promotion agreement will run for an agreed period, after which point it will automatically terminate. The agreed period is typically between 5 and 10 years.

  • Land Promoter's Fee: The land promoter will receive a proportion of the net sales proceeds. The land promoter is therefore financially incentivised to dispose of the land at the best possible price.

  • Land Promoter's Flexibility: The land promoter will be obliged to apply for planning permission and if obtained, to market the land for sale.

  • Planning Costs: The land promoter will be initially responsible for the planning costs. However, if it is successful in procuring planning permission and agreeing a sale of the land, then these costs will be refunded to it from the sales proceeds.

  • Landowner's Control: The promotion agreement is a collaborative approach, where the landowner and the land promoter will work together to agree a planning strategy and a disposal strategy. The landowner is not contractually bound to sell the land to a developer identified by the land promoter, unless this sale is at least the agreed minimum price. 


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