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Property Development Agreements
- AuthorJames Mackay
The way property development projects are managed depends on the agreements made between the landowner and developer. These agreements demand considerable care and attention not just in the negotiation but also in the drafting.
There are different types of agreements available and the type required will depend on the circumstances and objectives of the parties. The different types include; option agreements; conditional contacts and overage agreements to name just a few.
This type of agreement typically includes a payment of an option sum by the developer, and in return the landowner agrees that the developer has, for the duration of a period, the right to buy the land. Please note that this is a right to buy the land and not an obligation for the developer to buy the land.
An Option Agreement benefits both landowners and developers: a landowner has the comfort of a developer promoting their site for development; and the developer has security knowing the land is off the market and has the ability to purchase the land, typically at a discounted purchase price to reflect the planning risks.
This is a contract for sale where completion is contingent upon the occurrence of a certain event (such as the grant of planning permission). This grants certainty to the landowners that if certain trigger events are met, then the developer will in fact proceed with the purchase. There may also be certain positive obligations inserted within the contract to use its best endeavours to achieve the trigger event within a certain period of time and penalties for non-compliance.
This benefits the developer because they do not need to risk spending large amounts of capital on purchasing the land before they know it has planning permission for the development they seek. This contract in essence does give more security to the landowner that the developer will purchase the land if a trigger event occurs however like all of the agreements it depends greatly on the drafting and in this case the definition of trigger event.
This type of agreement establishes that the developer agrees to future payments to the landowner after purchasing the land. These future payments are conditional on specific trigger events occurring.
There are two common types of overage for development which are disposal overages or planning overages. The key difference between the two is that with a disposal overage the future payment is payable when the developer sells the land or part of it at a higher rate and the landowner can get an uplift payment. Whereas the planning overage the payment is made when the developer gets planning permission.
This is just a brief guide to some of the different agreements available when considering property development. But be aware that with each type of agreement they will need to be drafted specific to the parties’ goals and circumstances. To ensure you are protected and get the best possible outcome it is best you obtain professional legal advice.