The future of land value enhancement

A Promotional Agreement is a radical new way of approaching Planning and Development. KCS Development Ltd has over 20 years’ experience in securing Planning Consents, working with Local Interest Groups and in partnership with Land Owners to ensure that the best possible outcome for all parties is achieved.

KCS Development Ltd believe that the Promotional Agreement will become the accepted methodology for land value enhancement in the future and are ready now to seek new opportunities to work with Land Owners and their advisers to the benefit of all.

About

The way forward

A Promotional Agreement is a new form of understanding between the Promoter and the Land Owner which seeks to bring into line the interests of both the Promoter and the Site Owner to the benefit of both parties.

It is not an uncommon occurrence for Land Owners or their advisers to believe that land under their control has development potential and if Planning Consent for either residential or commercial development was obtained then the value of the asset would markedly increase.

The problem for Land Owners has been that in order to realise the increase in value they have to navigate their way through the Planning

System, which over the years has become ever more complicated and costly.

Therefore the reaction of most Land Owners has been to enter into legal contracts, commonly known as Subject to Planning or Option Agreements. This means that another party with appropriate expertise and finance tackles the planning issue on the understanding that, if they are successful, they will acquire the site from the Land Owner via a pre-agreed formula.

The inherent problem with the above contracts is that from the moment they are signed the interests of the Land Owner and the party with the benefit of the Subject to Planning or Option Agreement diverge immediately.

The Land Owner’s goal remains the maximisation of the site value, whilst the holder of the Planning Agreement’s goal is certainly still to secure a Planning Permission but thereafter to pay as little as possible for the site itself, therefore maximising the development profit obtainable by themselves.

The simple difference between a Promotional Agreement and a Subject to Planning or Option Agreement is that the Promoter is not the final developer of the site and therefore can continue to have the same goal as the Land Owner i.e. the maximisation of final site value.

Frequently asked questions

How can a company under a Subject to Planning or Option Agreement minimise site value payable to the Land Owner?

There are two areas where a Land Owner’s return can be minimised. Firstly, nearly all Local Authorities have policies which require contributions to matters such as affordable housing, education and public open space to be made through a Section 106 Agreement. Under normal Subject to Planning Agreements the cost of the Section 106 contributions will be deducted from the final land value payable. As the cost is to be deducted there is no incentive for the company acting under a Subject to Planning Agreement to dispute the level of contributions sought by the Local Authority, by making a full contribution they can argue that the chances of securing a Planning Consent are enhanced. Secondly, there are usually some abnormal costs to be incurred developing any given site in areas such as ground conditions, services provision to the site, ecology or surface water attenuation and in all cases there will be different construction methods to deal with the potential abnormal issues. It is therefore in the interest of the company acting under a Subject to Planning Agreement to opt for the most expensive construction methodology if this can be justified, as this abnormal cost will be deducted from land value even if once on-site the company that has acquired the land amends its construction methodology to the more cost effective approach.

Is a Promotional Agreement a simpler legal document than a Subject to Planning Agreement?

Promotional Agreements we have entered into are normally 13-14 pages long, whilst a Subject to Planning Agreement often stretches to 60 pages as a legal document. The fact is that, as a Promotional Agreement directly aligns the interests of the Promoter and Land Owner, many of the areas through which a lawyer would look to protect his client in a Subject to Planning Agreement become irrelevant. Legal agreements under promotional methods are therefore usually cheaper and quicker to obtain.

In a Promotional Agreement, which party bears the cost of the Planning Application?

All costs associated with the Planning Application, be they the preparation of information, the submission itself or time spent negotiating the Application are covered by the Promoter, not the Land Owner.

How expensive is it to seek Planning Consent for a site?

The expense of the Planning Application will vary depending upon the Local Authority and the size of the site. However, a useful guide is to assume that for a site which could house approximately 60 houses, planning fees and professional costs will be in the region of £125,000.00 – smaller developments will be less, larger developments more.

Under a Promotional Agreement how long will I be tying my land up for?

The length of the Promotional Agreement will be subject to negotiation and will depend to an extent upon the agreed planning strategy for the land. However, a useful guide is to expect to enter into a contract for 18 months, but to have within that time period certain mile stones such as submitting a detailed Planning Application which if not met would allow the Land Owner to exit from the contract at an earlier time.

Are there any Tax advantages to using a Promotional Agreement?

Tax payable by the Land Owner is always an important concern and in many ways there is no obvious reason why a Promotional Agreement should be preferable to a Subject to Planning Agreement. However, at KCS we are committed to working closely with our Land Owners and therefore are able to adapt our contracts if, by small changes to the timescales or wording of the document, a Tax advantage can be gained. The ability to do this has in some cases resulted in major benefits for the Land Owner.

What costs would a Land Owner incur in entering into a Promotional Agreement?

Under normal circumstances the Land Owner would expect to pay their own legal fees and the fees of any agent who was advising them in respect of the contract, however in some cases the Land Owner can negotiate for the Promotional Partner to settle these initial costs on the basis that they will form part of the overall development costs incurred by the Promotional Partner.

Will I as a Land Owner expect to be directly involved in the promotion of my land?

The Promotional Agreement places the responsibility for the Planning Application and negotiation squarely on the shoulders of the Promotional Partner. However, at KCS Development we strive to value our Land Owners and to allow them as much input into the process as they wish to make. It can often be the case that a Land Owner with local knowledge can be of significant benefit to the progress of a Planning Application if the Land Owner feels incentivised to assist.

If I as a Land Owner have already received some professional advice can my advisers continue to work for the Promoter?

Generally within the Agreement it is the Promoter’s responsibility to appoint the professional team. However, at KCS Development we respect relationships that are already in place and generally as long as a suitable fee agreement can be reached those parties with previous experience of the land and who have an on-going relationship with the Land Owner can be assimilated into our team as the Application progresses.

What percentage of final sale value would my Promotional Partner expect to receive?

The percentage of final sale value required by the Promotional Partner reflects the risk that the Promotional Partner deems to be associated with the chance of securing Planning Consent for the land. Generally at KCS, where we believe there is a good chance of obtaining Planning Consent, we would seek to charge 10% of the final sale value for our services, although a higher percentage could be negotiated for particularly risky applications and in some cases a slightly lower percentage if the land in question has a very high value.

Can Promotional Agreements work for commercial and mixed use sites?

A Promotional Agreement can certainly be adapted to cover a wide range of uses and works particularly well in mixed use sites where no single party would benefit from the entire Planning Consent. For example a Planning Consent for a small food store and associated residential development would, under a Promotional Agreement, be sold to two separate parties, both experts in their own field, rather than a traditional Subject to Planning Agreement, which would result in a single sale to the contracted party who would then trade on the element of the Planning Consent they were not experts in, taking a profitable turn on that part of the land at the expense of the Land Owner.

Does the Promotional Agreement have to result in a single land sale at its conclusion?

As indicated above, the Agreement can be drawn up to reflect a desire to sell land in several parcels, or potentially over several phases dependent upon how the Promoter and Land Owner see the way forward to maximising land value, as both parties have every interest in maximising land value; discussions are in nearly all cases amicable.

Can a minimum land price be inserted into a Promotional Agreement?

It is possible to insert a minimum land value into a Promotional Agreement, which would mean that the land is not sold if offers made for the site were below the minimum land value. It is however worth noting that if the minimum land value is set too high then this increases the risk of the Promoter not being able to sell the site, have costs reimbursed or make a profit and therefore may result in the Promoter seeking a higher percentage of the final sale value achieved.

Can an unconditional sale/offer be guaranteed at the end of a Promotional Agreement?

There obviously can be no guarantees, but there is also no reason why the market should not be attracted to a site with Planning Consent where development can commence immediately. At KCS Development we work very closely with our agents to ensure that the schemes we submit for planning are very much in line with what the market would want in any given location in terms of size of dwelling, types of dwelling, design etc. We are confident that the Consents we obtain will be attractive to a number of parties ensuring that best value is achieved.

How would I be kept informed of the progress of the Planning Application affecting my land?

The relationship between the Land Owner and Promoter would be defined within the Promotional Agreement. At KCS Development Ltd we expect to produce a monthly written report to our Land Owner detailing information such as costs incurred, progress made and meetings held during the previous month. We also look to meet with our Land Owners a minimum of once every three months so that a more wide ranging discussion can be held. Our view is very much that our Land Owner Partners should be fully aware of all matters affecting their site.

Is the Planning Consent achieved personal to the Promotional Partner?

No, the Planning Consent sits on the land and therefore it can be actioned by any party, not just the party that achieved the Consent. At KCS Development Ltd we are prepared to work even further with our land owning parties so that not only can the Planning Consent be used by all, but we can undertake to have all due diligence reports and information done under joint names so that the Land Owner can benefit from this information should the Agreement not lead to a final sale.

How can I be sure the Promotional Partner is pursuing planning in the most cost effective way?

It must be remembered that all costs associated with the Planning Application and initial due diligence are paid for by the Promotional Partner and therefore if Planning Consent is not forthcoming there is no way the Promoter will be reimbursed these costs, he therefore has every incentive to ensure that these costs are minimised.

If Planning Consent is refused do I have to repay the Promoter’s costs?

No, the Promoter is at risk until such time as a Planning Consent is secured and thereafter a sale completed.

Can a Subject to Planning Agreement protect me from having my land value minimised?

One of the reasons that a Subject to Planning Agreement is often 60 pages long is because a Land Owner’s solicitor will try to protect the client from the contractual party. However, whatever the legal agreement says, if the Land Owner is unhappy with the final price offered to them, they will be forced to oppose a developer who has the benefit of a full professional team with all their experience and the ability to claim that contributions were agreed to merely reflect the policy of the Local Authority. It is therefore very difficult for a Land Owner to achieve the right value without incurring considerable expense investigating all the information supplied by the former partner.

Under a Promotional Agreement who chooses the team that will seek a Planning Consent?

A Promotional Agreement will make it clear that the Promoter will be responsible for appointing and managing a professional team that will be seeking the Planning Consent. However, at KCS Developments Ltd, we are always happy to consider recommendations from our Land Owners as to professional companies they feel have particular expertise in a given area.

Are there minimum or maximum sizes of site that are suitable for a Promotional Agreement?

In general terms each case or land ownership has to be viewed on its own merits. However, at KCS Development Ltd we would suggest that a Promotional Agreement is suitable for any site where the expected final sale value is in excess of £1 million. For sites with a lower value than this it may be possible to negotiate a suitable agreement, but unfortunately often the costs of the Planning Application itself and the fact that the risk of these sit with the Promotional Partner means that alternative planning routes may be more appropriate.

What professional advisers are required to pursue a Planning Application?

This will depend upon the particular circumstances of the land, but generally you can expect that architects, ground engineers, drainage engineers, quantity surveyors, planning consultants, ecologists, arboriculturalists, landscape gardeners, noise consultants, mechanical and electrical services engineers will all form part of the professional team at one time or another. Some companies also look to contract the services of political consultants for Planning Applications. However, at KCS Developments Ltd, we firmly believe that Local Consultation is best undertaken by ourselves and therefore in our agreements we remain responsible for liaising with local Councillors, Parish Councils, local interest groups etc., a service which we provide free of charge within the agreement.

Can I continue to use the land while it is being promoted?

In general terms a Promotional Agreement will require that vacant possession of a site can be confirmed shortly after a sale has been agreed. Up until that point arrangements can be made for land to continue to be occupied, farmed or enjoyed, although some arrangements will need to be put in place for access to be given to the Promoter so that various surveys can be undertaken. Of course at KCS Development Ltd we ensure that any access to the site is given on the strict basis that the land is reinstated following the survey and the Owners indemnified for any costs that they might incur.

How will I know that costs of the planning identified by the Promoter have actually been incurred?

The Promotional Agreement relies on an understanding between the Land Owner and the Promoter that information relating to the costs will be made freely available. KCS Development Ltd provide monthly reports on incurred costs and how these costs affect the likely final development value of the site. We run a completely open book and can provide all relevant invoices, bank statements etc as required.

Can you give an example of how a Promoter could minimise abnormal costs affecting the value of a site?

There are many possible examples, but one obvious one is a situation KCS Development Ltd has just encountered on one of its sites. A report on the site indicated the presence of Japanese Knotweed, which would have to be removed before development could commence. Costs were sought for the removal of the Knotweed and it was discovered that if the Knotweed was to be dug up, removed from the site and the hole filled this would cost approximately £90,000.00. Alternatively the treatment of the Knotweed could commence now and continue over a period of time, which meant that the plant would be dead and would not have to be removed when development commenced; the cost of this second method was £12,000.00. Under a Subject to Planning Agreement the contracted party would certainly wait until after they had secured a consent to incur any unnecessary expense and therefore land value would be reduced by £90,000.00. Under the Promotional Agreement KCS Development chose to spend the £12,000.00 now in order that the final land value which they would benefit from would be maximised and therefore the net effect to the Land Owner was only £12,000.00.

Is the promotion of a site going to be more popular locally than traditional planning routes?

There is no real reason why this should be the case as there is always a fear within local communities of new development. However at KCS Development Ltd we are committed to working extremely closely with the new localist agenda to attempt to ensure that any contributions emanating from a Planning Application are spent locally. We go to great lengths to negotiate with Local Authorities so that education contribution is spent at local schools and public open space contributions enhance local green spaces. By obtaining these agreements with the Local Authority we can honestly state to local people that they will see benefits from a planned development and it is our experience that when the development benefits can be explained and identified opposition to development is radically reduced.

How can I be certain that after Consent is obtained the site is sold for the best possible price?

The Promotional Agreement makes it clear that the site has to be marketed openly once it has achieved its Planning Consent and that a sale cannot be made to an associated party. At KCS Development Ltd we actually invite our Land Owners to suggest several parties to whom they believe the site should be marketed in order that they have full confidence that best value has been achieved.

How would a Promoter minimise the impact of Section 106 obligations?

Whilst Local Authority Policy calls for Section 106 contributions to be made it is not a hard and fast rule and particularly in current circumstances there is the ability to argue with the Local Authority that if full contributions were made then the Scheme would become unviable. If it can be proven that the Scheme will be made unviable by full contributions the Local Authority is now under an obligation to consider reducing the impact of its wish list. As a matter of course, KCS Development Ltd prepare a viability report for the Authority, drawing on best practice from a wide range of areas to argue the case that only costs which can be afforded by a development are incurred. It is in the interest of the Promoter to minimise the cost of contributions in order to maximise final land value and therefore whilst debating the level of contribution might make the planning process more difficult, it is an intrinsic part of securing the most valuable Planning Permission.

What if circumstances change and I don’t want to sell my land?

A Promotional Agreement is based on the premise that if the Promoter meets their obligations i.e. securing a detailed Planning Consent, then the Land Owner is under an obligation to meet theirs i.e. bring the land forward for sale. However, at KCS Development Ltd we have seen circumstances where Land Owners for a variety of reasons may change their mind about selling and therefore have in some cases incorporated into our agreements clauses whereby the Land Owner would not have to sell the site if KCS Developments Ltd were compensated to the same level that they would have been if an open market sale had proceeded.

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