Tariq: One thing I find when explaining what a promotion agreement is to a landowner or even a property developer is that unlike a conditional or unconditional contract or even an option agreement – where the parties are at opposing ends of the negotiating table – with a promotion agreement, your interests are aligned so you’re both sitting on the same side of the negotiating table. Both parties are keen to explore the potential of the land and if it does have potential, to maximise the value or potential in the land then sell it for profit for both parties. That means marketing the land with the benefit of planning and getting the best market value for the land.
Many promotion agreements do however include an option for the land promoter, usually a housebuilder or property developer, to purchase the land at market value, with the benefit of planning. Practically, that would mean as a promoter, you have secured at least one, but preferably two or three offers and your offer under the option to purchase, needs to sit somewhere close to the highest offer you’ve received for that land. At that point, you revert to opposite sides of the negotiating table. How do you reconcile the position at that point? Is it tricky doing the deal in that situation?
RL: Yes, it certainly does become tricky and we have known situations where it has led to conflict too. The way we approach that is as soon as we know what scheme we will apply for planning permission for, we start evaluating what we can and want to pay for the land, assuming that scheme is granted. By this stage, we have gotten to know the landowners better, and they have gotten to know us better too. With that rapport, we feel confident in approaching the landowner with an offer price.
Some landowners are happy to do the deal with us, on the back of the rapport we’ve built, others prefer to wait for planning permission to come through and take it to the open market, to test what other offers they could get. Every landowner and their circumstances are different. Sometimes, given how long these types of deals take, their starting position, may not be their same position halfway through the process – maybe something has happened that has made them change their position and they rather not wait that long.
There are times, in fact we have one site on at the moment, where we have taken the site to market, even though we haven’t secured planning permission on the site just yet. Sometimes, the landowner is eager to just gauge interest, other times, the landowner just wants a quick exit so we’re effecting swapping out one landowner with another. The new landowner may have more time or appetite for taking the site through the planning process.
