Development Agreements and Contracts

 

Attwells Solicitors have significant experience in advising both landowners and developers on disposals and acquisitions of land for development.

We can assist you with all the legal requirements, completing the necessary paperwork quickly. In addition, Attwells will employ digital resources to make instructing and signing legal documents easy and remotely. 

Likewise, most other solicitors, Attwells Solicitors are property law experts with assess to planners, therefore we can handle all your development needs through to the sale of the properties. 

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Below is the information regarding the type of development agreements and contracts will offer to property developers. 

Option Agreement

An Option usually gives the buyer a right to purchase the land if they give notice to the landowner during an agreed period (the option period), usually in return for a sum of money (the option fee). If the notice is given by the buyer during the option period, the landowner has to sell the land to the buyer on the terms of the option.

By entering into an option agreement, this allows the buyer to explore the planning potential of the site without being obligated to complete on the purchase should they not be able to obtain the permission they require. It is also a helpful way to structure a transaction where the land over which the buyer is looking to obtain planning is owned by several different parties.

Usually the option is exercised on the basis that planning permission has been granted, which will significantly increase the value of the land compared to the value without the benefit of planning permission without the landowner having to incur the costs of obtaining the planning permission themselves.  The price for the option may be fixed, based on a formula or subject to market value determination by a surveyor.

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Unconditional Contracts

An unconditional contract for the sale or purchase of land is the simplest form of contract however this is often unsuitable for a development site unless this already benefits from satisfactory planning permission and the developer is happy to proceed with the transaction as it is and is not reliant on any further permissions being obtained.

If an unconditional contract is used, on exchange the buyer will be agreeing to complete on the purchase of the land on the completion date specified in the contract. This will not be dependent on any other factors and provides certainty for both parties.

Although an unconditional contract is the simplest form of contract for the sale or purchase of land, dealing with a development site often means that additional terms are needed in the contract to deal with any copyright, community infrastructure levy or environmental issues attaching to the site.

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Conditional Contracts

A more common form of contract for the sale/purchase of a development site is a conditional contract. This enables the buyer to agree to buy the property, subject to certain conditions being satisfied. For example, the most common condition to be satisfied is for planning permission satisfactory to the developer to be obtained. Once the conditions have been satisfied within the timescale specified in the contract, the contract becomes unconditional and the buyer must complete on the date set out in the contract.

The benefit of a conditional contract for a developer is that it allows the developer to secure the land for a certain period of time to allow them to satisfy the conditions of the contract (e.g. obtaining satisfactory planning permission). In the event that the conditions cannot be satisfied within the timeframe agreed in the contract, the parties are free to walk away and the developer will not have had the expense of purchasing land which it has not been able to obtain satisfactory permission for.

Additionally, a conditional contract allows the landowner to utilise the expertise of the developer in obtaining satisfactory planning permission (and potentially seek to have a say in the permission granted through the terms of the contract, although this is often limited) in exchange for agreeing to sell the land to the developer if the conditions are satisfied. This is limited to a certain period of time – often known as a long stop date – which is agreed between the parties.

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Promotion Agreement

A Promotion Agreement enables the promoter (often a developer) to apply for planning permission for the development of the landowner’s property and then provides for the property to be sold on the open market once planning has been obtained and the profits shared between both parties.

The benefit of a promotion agreement for the landowner is that they are able to utilise the expertise of the promoter in obtaining a satisfactory planning permission as it is in the best interests of both parties to maximise the planning potential of the property to increase its market value. The promoter usually covers the costs of the planning application at the outset and these are reimbursed when the land is sold on the open market. In the event that a satisfactory planning permission is not obtained by a certain date, the agreement comes to an end.

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Development Agreements

Where a landowner and developer collaborate, a common scenario is that the landowner will supply the land and allow the developer to obtain planning and build out the development. The developer will contribute the initial planning and build costs along with their relevant expertise. At the end of the build, the development will be sold and the profits split between the two parties.

In order to protect both parties, it is essential that an agreement is put in place setting out how the development is to be carried out. A development agreement is used to set out the obligations of each party and the timeframes they are to be carried out as well as the level of input each party will have during the process. For example, a developer will often want to minimise the input of the landowner whereas the landowner will usually want as much control as possible to ensure that the development is acceptable to them, especially if they will still own a neighbouring property at the end of the project. The agreement will also set out how the profits are to be divided and provisions for resolving any disagreements should they arise.

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Joint Venture Agreements

Although a development agreement is a form of joint venture agreement, these can take many other forms depending on the nature of the project. Typically on SPV will be incorporated for the purposes of owning and/or carrying out the development which may be owned and controlled by either two or more separate companies or individuals who wish to pool resources and limit their personal liability for a particular project.

There are a number of factors which need to be considered when structuring a joint venture project. For example, the joint venture agreement will need to take into account of the following amongst other things:

  • The scope and nature of the project;
  • The objectives of each party;
  • The degree of control and input each party is to have;
  • How the project is to be funded;
  • Who is to be responsible for day to day management of the project;
  • What is the agreed duration of the project;
  • If there is a disagreement under the terms of the joint venture agreement and a deadlock is reached (e.g. on the sale price of the completed development), how this is to be resolved;
  • If a party wishes to leave the joint venture, how this is to be dealt with.

How much will it cost?

We estimate a joint venture agreement will cost between £1549 to £2999.You will need to pay 50% of the fee on account. The balance of fees and any additional charges or disbursements will be due on completion.

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Residential Lease Creations

Residential property developers have always sought out large freehold properties where the building may have been physically separated into flats but legally it exists as just one freehold.

These properties which are common in some of our seaside towns provide an opportunity for a property developer to legally split the freehold title into flats and by doing so potentially realise greater value from the property on the basis that the total values of the flats may often significantly exceed the value of the property as one freehold.

Following the split into flats the property developer will typically sell off the flats potentially retaining the freehold as a ground rent investment. 

In more recent years this has become popular in town centres where empty offices are being acquired and then using the planning permitted development rights changes to residential provided prior approval has been obtained from the local authority.

Town centre living is now popular and with the price of large office freeholds at a low, landlords wishing to dispose to avoid business rates and the costly energy efficiency changes required the  general permitted development rights have created a new market for lease creations.

You must of course initially ensure that you have lawful use from a planning perspective and that any works that need to be undertaken to physically separate the flats is undertaken in accordance with building regulations but following this there are a number of matters to consider from a legal perspective including:

  • Setting up a freehold management company to hold the freehold following the lease creation.
  • Lease plans will be needed before the leases can be drawn up identifying the extent of the flats and common areas. Attwells can provide you with contacts here.
  • Drafting of the leases to ensure they are compliant with the Lender’s Requirements but also preserve as much value as possible for the freeholder.
  • Lender requirements concerned with the 6 month ownership rule.
  • Raising finance if required.
  • Producing a comprehensive sales pack if sale is the intended exit

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