Promotion Agreements: Fees, Deductions and What You Actually Receive

A land promoter is a business that specialises in getting planning permission on land it does not own. Under a promotion agreement, the promoter funds the surveys, the local plan work and the planning application. You keep owning the land. When permission is granted, the land is marketed and sold to a housebuilder or developer, and the money is split according to the agreement.

The main difference from an option is who sets the price. Under an option, the option holder buys the land itself, either at a price agreed at the start or at a discount to market value. Under a promotion agreement, the promoter does not buy. The price is whatever the open market will pay when the site is sold.

1. Heads of terms. The promoter's fee, the cost cap, the minimum price, the promotion period and who pays your professional fees are agreed in outline.
2. The promotion agreement. A legal contract, usually protected by a notice or restriction on your title so the land cannot be sold around the promoter.
3. Promotion. The promoter pursues planning through the local plan or an application, at its own cost and risk. If planning fails, the promoter normally recovers nothing from you.
4. Marketing. Once a suitable permission is granted, the land is marketed, usually through a land agent, to find a buyer.
5. Sale and distribution. You sell to the buyer. Out of the price, agreed costs are repaid, the promoter takes its fee, and the rest comes to you.

Because the promoter is paid a share of the sale price, its interests are broadly lined up with yours. Both of you want the highest price. That is the main attraction of a promotion agreement, and several law firms that advise landowners make the same point.

Most promoters are paid in two ways out of the sale proceeds: they are repaid the costs they spent on planning, and they take a fee, usually a percentage of the net proceeds after those costs and the sale costs have been deducted.

The Percentage Fee

Fees are negotiated site by site. Published guidance gives a feel for the range. Michelmores, a law firm with a large agricultural practice, describes a promotion fee of typically 10% to 25% of the sale price after deductions. Harper James, another firm, suggests you can usually expect a split of around 80% to the landowner and 20% to the promoter. The right figure for your land depends on how hard and how expensive the planning will be, and how much risk the promoter is taking.

Recovering Planning Costs

The promoter's spending on planning consultants, surveys, transport and ecology work, applications and appeals is normally repaid out of the sale price before the fee is calculated. On a site that goes through a local plan and an appeal, these costs can be large. Landowner advisers commonly ask for:

• A cap on the total costs the promoter can recover, so a long or messy planning process does not eat into your share without limit.
• Only external costs. The promoter's own staff time and office overheads should not be recoverable. They are what the fee is for.
• Your approval for unusual or large items, such as buying a neighbour's land for access.
• Evidence. Invoices, not estimates.

An alternative is for the promoter to recover no costs at all and take a higher percentage instead. That is simpler to check and removes arguments about invoices, but it changes the maths, so compare both versions on the same figures.

Section 106 and CIL, Explained

Section 106 agreements and the Community Infrastructure Levy are how councils collect money and affordable housing from development. A housebuilder buying land with permission works out what it can pay by taking the value of the finished homes and subtracting build costs, its profit, and these planning obligations. So they are already reflected in the price you are offered. In the normal case they should not appear again as a deduction in the promotion agreement. Our guide to Section 106 and CIL explains how they are calculated.

As the landowner you may be asked to sign the Section 106 agreement, because it binds the land. Your solicitor will want the obligations to fall on whoever carries out the development, not on you, and will want an indemnity from the promoter or buyer.

Here is how the figures flow on a made-up 12 acre site sold with outline permission for housing.

Now change just one line. Suppose there was no cap on costs, and a planning appeal pushed the promoter's costs to £700,000.

If the fee had been 20% of the gross price instead of the net, the promoter would take £1,000,000, not £910,000, on the same site. Ask your solicitor to run the draft agreement's own wording through figures like these before you sign.

Once a buyer is found at a price that meets the agreement's terms, you are normally obliged to sell. A minimum price is your protection against being made to sell in a weak market. It is a figure below which you cannot be required to sell, often expressed as a sum per acre, and it is usually tested against what you would receive after all deductions and the promoter's fee, not the gross price.

Ask whether the minimum rises with inflation, and what happens if the market falls after planning is granted. Some agreements let marketing be paused if values fall by an agreed amount. That protects you from a promoter keen to sell quickly and recover its costs when waiting would get a better price.

How the land is sold has a direct effect on the price, so the agreement should set out the process rather than leave it to the promoter.

• Who appoints the selling agent? You may want your own land agent involved, especially if the promoter has a preferred or related agent.
• Will the land be sold as a whole, or in parcels or phases? Selling in phases can raise the total but spreads the money over years.
• Can you approve the buyer and the terms, acting reasonably?
• Is the promoter, or anyone connected to it, allowed to bid? If so, how is a fair price shown?
• What happens to the proceeds if the buyer pays in instalments, and who bears the risk if a later instalment is not paid?
• Are there obligations to progress the sale within a set time once planning is granted?

Where several landowners are involved in one site, there is often a separate equalisation agreement so that each owner shares in the proceeds fairly, whether their field ends up as houses, roads or open space. That needs its own advice.

A promotion agreement exposes your land to the open market once it has planning. If the market is strong, that can mean a higher figure than an agreed price or a discounted market value under an option. If the market is weak, or the site turns out more costly to develop than expected, your share will be lower and you carry that risk.

An option with a price agreed at the start gives you a known figure, with the option holder taking the market risk. Neither route is always better. It depends on your appetite for risk, your need for certainty and how you feel about the market. We compare them side by side in our option versus promotion agreement comparison, and explain the other route in our guide to option agreements.

• What is your fee, and is it a percentage of gross or net proceeds?
• What costs can you recover, is there a cap, and are internal costs excluded?
• Show me a worked example from gross price to my share, using the draft agreement's wording.
• What minimum price will you agree, is it indexed, and is it tested after all deductions?
• How long is the promotion period, what extends it, and is there a long-stop date?
• Who chooses the selling agent, and can I approve the buyer?
• How much will you contribute to my legal and agent fees?
• What happens to the surveys and reports if planning fails?

We work differently from a promoter. We agree the price with you at the start, we pay for all of the planning work at our own cost and risk, and you receive that agreed price if planning is granted. There is no percentage fee to calculate and no list of deductions to argue over at the end. If planning is not achieved, you keep your land and owe nothing.

A fixed price also protects you if land values fall while planning is in progress, and it gives families, executors and trustees one clear number to agree on. We contribute to your own legal and professional fees so that someone acting only for you can review any offer, including ours. Our how it works page sets out the process step by step.

If you would like an independent view of your land before talking to a promoter or anyone else, ask for a free review.