Introduction

There are two main ways in which a land or property owner can promote their real estate and increase its value: Promotion Agreement or Option Agreement. This article aims to provide an overview of both options, exploring the differences and benefits of Promotion Agreements versus traditional Option Agreements.

What is a Promotion Agreement?

A Promotion Agreement is a contract that is agreed between a land or property owner and a “promoter”. The promoter may be a developer, but it is more beneficial to a real estate owner if they partner with an independent planning specialist, such as Wildgoose. The promoter is responsible for taking land or property through the planning process, securing planning permission for future development. This stage of the promotion agreement unlocks the potential of the real estate and increases its value. Once planning permission is granted, the promoter markets the land or property and secures its sale. As part of the agreement the landowner then sells the promoted land, sharing a proportion of the net return with the promoter based on a pre-agreed percentage, which is reflective of the amount of work and level of risk for each party. The promoter bears the cost of promoting the real estate, which is recovered from the net sales.

What is an Option Agreement?

Option Agreements are often similar to Promotion Agreements in the period leading up to planning permission being granted. They are usually brokered with developers, who are given the option to buy land or property from the owner, within a negotiated time period, typically 5-10 years. The developer is obliged to apply for planning permission during this period, which is done at their own cost. If planning permission is granted, the developer has the option to purchase the land, or not.

The Benefits of Promotion Agreements Versus Option Agreements

Option Agreements have been used for some time by developers to create investment options in land and property with the potential for Planning Permission. In recent years there has been an increase in the use of Promotion Agreements, which may offer an alternative to real estate owners looking to maximise the return on their land or property.

Control and Flexibility

Unlike a Promotion Agreement, an Option Agreement includes no contractual obligation to sell the land or property, removing landowner control and putting developers firmly in the driving seat. This could be problematic if the developer is unwilling to exercise their option to purchase or is prepared to delay it. Promotion Agreements can be more flexible in this respect, being available on the open market through an independent promoter once planning permission is granted.

Common Purpose, Reduced Costs and Greater Value

Promotion Agreements also shift the balance of interests, with both the promoter and landowner looking to maximise the final sale price. This approach means that both parties act as a team with a common purpose and shared goal, reducing costs and creating greater value. This is in stark contrast to Option Agreements, where the developer and real estate owner may be in conflict, with the developer looking for the lowest purchase price and the owner aiming for the highest.

Conclusion

The choice of Option Agreement and Promotion Agreement is ultimately down to the land or property owner. However, there are numerous benefits to choosing a Promotion Agreement over an Option Agreement. Working with an independent planning specialist, that shares a common purpose with the real estate owner, can deliver lower costs, a faster outcome, greater flexibility when it comes to marketing the land or property, and ultimately a greater value sale.

If you are looking to unlock the potential of your land or property, find out more about how Wildgoose can help you with a Promotion Agreement that puts you in control.