Option, Promotion Agreement or Joint Venture: Which Suits Your Land?

All three let a landowner get planning permission without paying for it upfront. The difference is who ends up with the uplift. Under an option, the developer buys your land after planning at market value less an agreed discount. Under a promotion agreement, the promoter gets planning, the land is sold on the open market, and the promoter takes a pre-agreed share of the proceeds. In a joint venture, you put the land into the scheme and share in the profit of the finished development, along with its risk.

If you remember one thing: an option gives the developer control of the sale, a promotion agreement keeps you both on the same side of it, and a joint venture makes you a developer.

The three routes compared

None of these is better in general. Each fits a different owner and a different site.

Option agreement: certainty of a buyer

An option gives a developer the right, but not the obligation, to buy your land within a fixed period. In exchange they pay you an option fee and take on the cost and risk of getting planning.

How the money flows. If planning is granted, the developer serves notice to buy. The price is normally the market value of the land with that permission, less an agreed discount and some of the developer's costs. If planning fails or they walk away, you keep the land and the option fee.

What to negotiate:

• The discount. It's the developer's reward for funding planning. Agree it as a percentage in the heads of terms.
• A minimum price, so a weak market or a disputed valuation can't push you below a floor.
• The valuation mechanism. Who values the land, on what assumptions, and how disputes are settled.
• Which costs are deductible, and a cap on them.
• Planning obligations on the developer. Deadlines to submit an application, and to appeal if refused, so your land isn't simply banked.
• The option period. Long enough for planning, short enough not to sterilise your land.

Suits: owners who want to know who the buyer will be and are happy to trade some price for certainty.

Promotion agreement: same side of the table

A promoter funds and manages the planning, then the land is sold on the open market. From the proceeds, the promoter first gets its costs back (usually up to a cap) and then a pre-agreed share. On our own land page we quote a promoter's share of typically 10–20% of the sale proceeds.

Why owners like it. The promoter is paid out of the sale price, so it wants the highest price as much as you do. In an option, the developer is also the buyer, and every pound off the land price is a pound in its pocket.

What to negotiate:

• The share and the costs cap. Both, in writing, at heads of terms.
• The marketing and sale process. Who appoints the agent, who approves the buyer and the price.
• A minimum price below which the sale needs your consent.
• Planning obligations and timescales, as with an option.
• What happens at the end of the term if no permission is granted.

Suits: owners who want the best open-market price and are happy to wait for a sale.

Joint venture: a share of the finished scheme

In a JV, you contribute the land and a developer contributes expertise, management and usually most of the funding. The scheme is built, sold or let, and the profit is split as agreed.

How the money flows. The land is given an agreed value at the start, which may be paid partly upfront and partly from sales. On top of that, you share in the profit. If the scheme does well, you earn far more than a land sale would pay. If costs rise or sales slow, your share shrinks.

How it's set up. Some JVs are purely contractual. Others use a special purpose company or LLP that owns the land and the scheme. The structure has real tax and liability consequences, so it needs specialist legal and tax advice from the start.

What to negotiate:

• The land value credited to you, and when it's paid.
• The profit split, and the order in which money comes out (costs, finance, land, profit).
• Decision rights: design, budget, sales, and what happens in a deadlock.
• Who funds overruns, and what that does to the split.
• Exit: what happens if either party wants out before completion.

Suits: owners who can wait, don't need the money now, and understand they're taking part of the development risk for part of the development profit.

Which one, for which owner?

Some examples of how the choice usually falls:

• A family selling inherited land, wanting certainty and no involvement: an option, or a sale subject to planning.
• An owner who wants the best price and has no particular buyer in mind: a promotion agreement.
• A business owner with a yard they'll vacate in a few years: an option or promotion agreement timed to the move.
• An investor or family office with a long horizon: a joint venture.
• An owner with a strong site and their own funds: none of them. Pay for planning on a fee basis, keep all the uplift, then sell or build. Our land value uplift page explains that route.

If you're simply weighing a sale, start with how to sell land to a developer.

How Craftex works with landowners

We don't come with one product. Depending on the site and its stage, Craftex can co-invest, take 100% of the risk, or work on a fee or percentage basis. In practice that means we can take an option, promote the land, or partner with you in a joint venture, and we'll show you the routes side by side before you choose.

Two things are different about doing this with us. Our Development Director, Rob Barton, previously delivered more than 4,000 homes and acquired over £225M of land as a housebuilding managing director. And because we design and build as well as develop, the scheme that gets planning is one our own team has priced, so the land value isn't undermined later by a build cost nobody checked.

We take development schemes from £3M to £150M GDV. Investors can read about investment opportunities in redevelopment projects.

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