For farming landowners in Chelmsford and beyond, the lure of selling or developing farmland with a developer – for potentially life-changing sums – comes with its share of potential pitfalls. These transactions are often complex, requiring clear strategies and robust agreements to ensure landowners are not left at a disadvantage. Here’s how to navigate these deals while staying in control.
Promotion agreements
Promotion agreements allow promoters (or developers) to secure planning permission and market the land for sale, ensuring the land achieves its full development potential before being sold. However, these agreements naturally prioritise the promoter’s interests, so careful drafting and safeguards for the landowner are essential. A restriction placed on the title by the promoter prevents unauthorised dealings by the landowner during the term of the agreement, ensuring the promoter’s investment in planning and marketing is protected.
For example, a promotion agreement might stipulate a 90:10 split of sale proceeds in favour of the landowner after deducting costs. It’s crucial to specify how these costs are calculated to avoid disputes. Independent valuations at key stages can keep things transparent and ensure the promoter doesn’t undervalue the land to secure a quick sale.
Overage agreements
Overage agreements safeguard a landowner’s right to benefit from future increases in land value, typically after planning permission is obtained or if the land is developed further. For instance, an overage clause might state that the landowner is entitled to 25% of the uplift in value, calculated as the sale price minus the base market value agreed at the time, usually based on RICS Valuation. This could be triggered by several events, such as the grant of planning permission for additional housing density, the sale of the land with planning permission in place, or the implementation of that planning permission through actual development on the land. A trigger choice is decided between the parties from the outset.
To enforce overage agreements effectively, a restriction or sometimes a charge can be placed on the land by the landowner. This ensures the developer cannot sell or mortgage the property without satisfying their overage obligations. Additionally, overage agreements often include a time limit—say, 20 years—to balance the developer’s financial planning with the landowner’s long-term interests.
Conditional contracts
With conditional contracts, the landowner agrees to sell the land only if specified conditions are met—usually obtaining planning permission with conditions acceptable to the buyer. This type of agreement protects landowners from prematurely selling land that could skyrocket in value post-sale.
For example, a conditional contract might require the developer to obtain planning permission within two years, or ten years for extremely large developments. If the developer fails to meet this timeline, the landowner retains full ownership without obligation. Including mechanisms to extend the timeline—perhaps for an additional fee—can offer flexibility while maintaining control.
Option agreements
Option agreements give developers the right, but not the obligation, to purchase land within a set timeframe, often at a pre-agreed price or formula. For landowners, these agreements can ensure a fair valuation while allowing for additional payments if the land’s value increases.
For example, a clawback clause could guarantee the landowner 20% of any uplift in value realised after the option is exercised. Developers often place a restriction on the title to protect their rights under the agreement, but landowners should negotiate an appropriate option fee to compensate for the exclusivity granted.
Exclusivity agreements
Exclusivity agreements are often used to provide developers with a period of exclusivity to investigate the land’s potential for development and negotiate terms without competition from other buyers. These agreements typically include an exclusivity fee paid to the landowner, compensating them for temporarily removing the property from the open market.
For instance, an exclusivity agreement might last for 6 to 12 months and include conditions requiring the developer to actively progress due diligence or planning applications during this time. Landowners can protect their interests by ensuring the agreement specifies clear milestones, such as instructing a planning consultant or submitting formal offers, to avoid unnecessary delays. Additionally, the agreement can include provisions to recover costs if the developer fails to proceed with the transaction after the exclusivity period ends.
Joint venture agreements
For landowners willing to collaborate more closely with developers, joint venture agreements can be a lucrative option. These arrangements allow the landowner to contribute the land while the developer brings the expertise and funding for development, sharing profits according to an agreed formula.
For example, a joint venture might allocate 60% of profits to the landowner and 40% to the developer, after deducting development costs. To protect the landowner’s investment, a charge can be registered against the land, ensuring recourse if the developer fails to deliver. Clear decision-making protocols and dispute resolution mechanisms are also essential in such partnerships.
Additional safeguards
Title restrictions: For overage agreements and joint ventures, landowners can register restrictions to prevent developers from selling or mortgaging the land without their consent.
Charges over land: Charges give the landowner a secured interest, ranking ahead of unsecured creditors in case of developer insolvency. Usually, a landowner would only be able to secure a second legal charge, as the developer’s primary lender would want first priority.
Independent advice: From valuations to tax implications, seeking advice from professionals experienced in agricultural property ensures landowners understand their rights and obligations. We will be able to assist with estate tax planning.
Engage a land agent: Land agents can play a vital role in negotiating and agreeing the Heads of Terms with developers. Since these terms dictate the rest of the legal transaction, involving a land agent ensures key aspects such as price, timelines, and responsibilities are accurately and favourably structured. Their expertise can help landowners secure better deals and avoid unnecessary risks.
Final thoughts
Farming isn’t just a livelihood; it’s a legacy. Selling or developing land is no small decision, and the stakes are high. Whether it’s negotiating overage payments, managing restrictions, or structuring joint ventures, these agreements can feel daunting. With our expert legal advice and a clear strategy, landowners can protect their interests and confidently navigate these complex transactions. After all, securing the right agreements today lays the groundwork for a prosperous tomorrow.