The best means of promoting development sites is driven by an owner’s appetite for both risk and investment in the process needed to unlock the potential value of the site.
At GSC Grays our philosophy is to remove as much of the risk as an owner can afford to (given the circumstances of the site) before taking the property to the market.
There are a number of ways in which a site can be promoted.
This would involve undertaking all of the work yourself if you are to complete the process. This work would include:
a) Reviewing the planning policies affecting the site
b) Undertaking site investigation work
c) Undertaking the technical work required to support a planning application
d) Assessing the market to determine the most suitable end product
e) Designing the site
f) Seeking pre application advice from the local planning authority
g) Engaging in public consultation
h) Planning submission
In light of the financial commitment and inherent risk, many clients are unwilling to fully commit to this process and would rather consider one of the following alternatives:
Increasingly popular, this is an arrangement whereby a third party (“the Promoter”) invests in the planning process at their risk. They will enter into an agreement with the landowner in which a commitment is given to sell in the event of planning permission being obtained.
The Promoter will then pursue planning and, if successful, market the site. They are generally paid a percentage of the net sale proceeds, at a pre agreed rate.
The benefits of a promotion agreement are that the Promoter and land owner’s interest are financially aligned because the higher the net sale price the better the position for both concerned.
An Option Agreement gives a third party, typically a house builder, the right (without obligation) to purchase the site in the event of planning permission being granted. This is distinct from a conditional sale whereby the land will be sold subject to planning permission being obtained and thus obliges the purchaser to acquire the property under that circumstance.
Generally the obligations on the buyer or beneficiary of the Option Agreement are similar to those of a Promoter however unlike the Promoter, they will be acquiring the site themselves and therefore have an interest in purchasing it for the lowest possible price. The result is that the landowner and the buyer’s interests conflict when trying to agree market value between them.
Whilst the differences between the parties are something which the landowner needs to be mindful of, it does not rule out the use of option agreements or conditional contracts.