There are several ways that developers may wish to purchase land from landowners. It is worth remembering that developers will likely have purchased land previously and have significantly more experience at purchasing land than any seller.
A developer is likely to be friendly and charming during the process of purchasing land, however, it is worth sellers remembering that they are working for businesses and are acting in their employer’s (or their own if they are individuals) best interests and are unlikely to be concerned with what is best for an individual seller.
A developer will not wish to purchase land unless they have a guarantee they will be able to develop the same and therefore, make money on the same. As such, it is rare for a developer to buy land outright without planning permission being granted in relation to the land in the first place, and the developer will not want to meet the cost of planning permission unless they have some guarantee of purchasing the land once that planning permission has been granted. The following are examples of the types of agreement that might be suggested by a developer and the pros and cons of each.
It is always worth remembering that applications for planning permission can take some time and any of the following options will ‘tie-up’ the land and limit what the landowner can do in relation to the same, meaning that the seller will be stuck and will be unlikely to be able to sell the property until the expiry of the below agreements.
1. Conditional agreement
Arguably, this is the most beneficial arrangement for a prospective seller. The contract would state that on the granting of the planning permission the seller is obliged to purchase the property. This allows the seller maximum protection in relation to the sale and a landowner could take the developer to court for specific performance of the contract.
The formation of the contract is important, usually there would be a clause to state that any planning permission will need to be satisfactory for the buyer and such clauses should be carefully considered so that there is not an ‘out’ for the developer in any circumstance.
It is also important that time limits are placed on a conditional agreement so that each party is not bound by the same indefinitely.
2. Option agreement
An option agreement is more favourable for a developer. Under these agreements the developer will usually apply for planning permission. Once that planning permission is granted, the developer will have a choice whether or not they proceed with the purchase of the property. This can mean that a seller is unable to deal with their land as they see fit or sell the same for the period of the option agreement only for the property not to be purchased at the end.
Owing to this, sellers should receive something in return for the grant of the option. This may be money or some other benefit.
It is important for sellers to remember that an option is only the possibility of a future sale and as such any purchase price recorded in the option agreement is only a possible purchase price and might never be paid, as such sellers should not be swayed to accept an agreement only because of a generous purchase price.
3. Promotion agreements
These work differently to the above-mentioned agreements and allow a developer the opportunity to apply for planning permission and then sell the land on to another party who will actually develop the property. When developers advocate for these agreements, they are likely to discuss with the seller that this puts both the seller’s, and the developer’s interests on the same level as they will both want to achieve the greatest price for the land. While this may be helpful it is also worth remembering that these agreements come with large benefits for developers who face far less risk in selling the land on, rather than developing the land themselves.
Sometimes promotion agreements will also contain provisions that allow the developer an option to purchase the property should a buyer not be found.
Contact Kew Law for expert legal advice
With any of the above agreements it is imperative that expert solicitors are instructed in order to assist with any of these matters.
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