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Senior Agriculture and Rural Land Solicitor When considering the development potential of land, promotion agreements have become an increasingly common method of unlocking value. For landowners who want to maximise returns on their property without navigating the complex and often costly process of obtaining planning permission themselves, a land promotion agreement can be an effective solution. But what exactly are these agreements, and how do they operate?
What is a promotion agreement?
A land promotion agreement is a contract between a landowner and a land promoter (often a specialist company or developer), whereby the promoter agrees to take responsibility for securing planning permission for the land, with the aim of selling it with consent for development – typically for housing or commercial use.
Once they sell the land, the landowner and the promoter share the proceeds, typically after deducting the promoter’s costs and an agreed proportion for their services and risk.
This kind of agreement is especially appealing to landowners who might lack the expertise, time or financial resources to pursue planning permission independently.
How does a land promotion agreement work?
The process usually proceeds through these stages:
Entering into the agreement
The landowner and promoter negotiate and sign agreed Heads of Terms outlining:
- The promoter’s obligations (e.g. obtaining planning permission).
- The timescale for promoting the land.
- How sale proceeds will be split.
- What costs can be deducted before profits are shared.
- An agreement for the promoter to pay the landowner’s legal fees (n.b., although those fees are often included in the costs, which can be deducted before splitting the proceeds).
The landowner typically grants the promoter exclusive rights to promote the land for development over an agreed period.
The promoter’s lawyers will then issue the draft Promotion Agreement based on the Heads of Terms for negotiation and approval by the landowners’ lawyers.
The planning promotion process
The promoter:
- Conducts technical studies (such as ecology, highways, or flood risk assessments), so they will want early access to the land.
- Engages with local authorities and planning consultants.
- Submits and manages the planning application.
The promoter bears all upfront costs and takes on the risk of the planning application being refused.
Achieving planning permission
Once planning permission is obtained (either via a local plan allocation or planning application), the land value typically increases substantially. This is the key milestone that unlocks the development potential.
Marketing and sale of the land
The promoter and landowner jointly appoint an agent to market the land. Once a buyer is found, the land is sold – usually with the benefit of planning permission in place.
Distribution of sale proceeds
From the sale proceeds:
- The promoter’s agreed costs are first deducted.
- The net proceeds are then split according to the pre-agreed formula – for example, 70% to the landowner, 30% to the promoter.
This structure aligns incentives by ensuring the promoter only gets paid when they successfully sell the land for development, motivating them to achieve the highest possible value.
Benefits of promotion agreements for landowners
The landowner has:
- No upfront costs or planning risk.
- Access to planning and development expertise.
- Potential to significantly increase land value.
Benefits of promotion agreements for promoters
Promoters have:
- A profit opportunity based on securing valuable planning permissions.
- Long-term partnerships with landowners.
- The potential for large-scale land portfolios.
Promotion agreements: Risks and considerations
Although promotion agreements provide many advantages, they also present significant risks and factors to consider:
- Timeframe: The process may take several years, particularly if linked to local plan cycles.
- Control: Landowners cede some authority over the planning strategy.
- Complexity: The agreements can be intricate, necessitating expert legal advice to safeguard the landowner’s interests.
- Uncertainty: Planning permission is never guaranteed.
- Funding for the promotion pre-works and planning process: If promoters need to raise funds by borrowing, they often want to use the land as collateral. This means the landowner may be required to grant a legal charge over the land. Arrangements must be in place for the promoter to service the loan, and there is a risk that the promoter might become unable to do so. In such a situation, what happens to the land? Very careful drafting is essential, or preferably, the promoter should avoid raising funds in this way.
It is vital that both parties seek independent legal and planning advice before entering into a land promotion agreement.
How do promotion agreements differ from option agreements?
Land promotion agreements are often confused with option agreements, but they operate differently. In an option agreement, the developer has the right (but not the obligation) to purchase the land at a pre-agreed price after securing planning permission. In a promotion agreement, the promoter does not purchase the land but markets it after securing planning permission, aiming to maximise open-market value. Ownership of the land is retained by the landowner throughout, and ultimately, the landowner will be the seller.
The key difference lies in the shared objective: in a promotion agreement, both landowner and promoter gain from securing the highest sale price possible.
Comment
Land promotion agreements are a powerful tool for unlocking the development potential of land. When carefully structured, they enable landowners to achieve significant returns while minimising risk and effort. For promoters, they offer a business model based on planning expertise and long-term investment.
However, the success of such agreements depends on clear communication, well-drafted contracts, and mutual trust. If you are considering a promotion agreement, you should contact us for specialist legal advice to ensure the arrangement aligns with your financial goals and risk tolerance.