Promotion Vs Option Agreement

Mark and James attended the Midland Counties Association of Agricultural Valuers (MCAAV) Annual Conference in November 2016.  There were various eminent speakers giving talks on a number of pertinent subjects. Then followed an open debate as to whether the attending Chartered Surveyors would be inclined to advise their clients to enter into a Promotion or Option Agreement if their land was perceived to have development potential.

The scene was set by a Land Promoter describing how his terms and company operates and was followed by a developer who favours entering into Option agreements, rather than Promotion.  Both representatives were extremely credible and appeared to be successful in what they do.  Following their individual cases being put forward, numerous questions were raised and comments made from  the floor as to the pro’s and con’s of each alternative, closing comments were made and a vote followed as to the which method of land promotion would be recommended by an advising Chartered Surveyor to a landed client.

Both advocates of the alternative methods of promoting land clearly had sound financial backing and very competent planning consultants, architects, engineers and environmental consultants. Even so, it was clearly the opinion of the vast majority of the 150 or so Chartered Surveyors present that, they would almost always recommend a Promotion rather than Option Agreement mainly because of the transparency of all matters financial and the ability to optimize the receipt to the Landowner by exposing it to the open market by the landowner.

Even if the Option expressed a higher percentage of sale value than the Promotion Agreement, it is widely accepted that whatever the percentage the Landowner reserved the right to, they would achieve a higher net receipt purely because of the exposure to the open market. For example; 80% of £10 million is worth more to the landowner than 85% of £9 million.

It is often the case that an Option provider might require a slightly lower discount than a Promoter would share of sale value which, initially seems attractive, but when multiplied by a lower purchase price the net return to the landowner is likely to be significantly less.