Overview: Legal agreements dealing with the promotion of development land

An option agreement gives a developer the right, but not the obligation, to buy your —usually within a set timeframe on pre-agreed terms at a price determined by a formula or valuation mechanism.

The developer typically pays an option fee (which may be nominal or substantial) for this right and funds the planning process at their own risk. If planning permission is granted, they can “exercise the option” and purchase the land.

Advantages for the landowner

• Timing of receipt: A sale can occur quickly once planning is granted.
• Who will develop: Greater certainty over the identity and likely build quality of the developer, particularly pertinent where legacy is a key consideration of the landowner.
• Loss of control during the option period.
• Risk that the developer may not actively pursue planning if market conditions change.
• The eventual sale price may not reflect the full market uplift.

Key concerns

Ultimately the Option Agreement is not always deemed to be the most attractive approach, but it can be the most appropriate in a particular situation.

A promotion agreement aligns the landowner and promoter to work together to secure planning and then sell the land on the open market. The promoter funds and manages the planning process, and once planning is achieved, the land is marketed competitively—usually to housebuilders.

The sale proceeds are shared between the landowner and the promoter after reimbursing the promoter’s costs.

Main advantages for the landowner

• Aligned interests: Both parties benefit from achieving the highest possible sale price.
• Market testing: The land is sold on the open market, helping to ensure fair value.
• Control:  considering proposals and concepts suggested by the promoter and taking part in the selection process of a developer 

Considerations

• Upon obtaining planning permission, there is still the risk of needing to find and retain a purchaser through to completion;
• The promoter typically takes 10–20% of the net sale proceeds as their reward, depending on risk, complexity, and upfront costs.

Promotion agreements are often favoured by landowners seeking transparency and value maximisation.

Hybrid agreements combine elements of both option and promotion structures. They are increasingly popular but only work on sites in excess of say 600 units which might be delivered in phases.

Typically, a developer agrees to promote the land for planning at their cost. Once planning permission is achieved:

• In initial parcel of land is marketed for sale, with the developer barred from bidding, thus using the market to set the land value.
• The now determined market value is then applied to the remaining land to determine the sale price.

This provides fairness by ensuring open market value is achieved with a developer, which might otherwise have been difficult to achieve through valuation negotiations. 

Advantages for the landowner

• Value: Retains upside potential from a market sale by introducing competition into the process, protecting value.
• Landowner control: The landowner can decide whether a purely value driven decision is made, or to opt for a legacy housebuilder to deliver gateway housing and placemaking to set the tone for the wider scheme. 

Challenges

• The structure can be legally complex, requiring careful drafting to ensure they can be delivered and that no tax burdens are triggered.