Splitting planning costs between landowner and promoter

In a promotion agreement the promoter spends the money and the landowner repays it out of the sale proceeds. That is the whole structure, and promotion agreement planning costs are therefore not a cost the landowner writes a cheque for. They are a deduction taken off the top when the land sells, which means the landowner's real exposure is the size of that deduction rather than any cash outlay.

Which is why the two numbers that matter in the agreement are the cap on recoverable expenditure and the definition of net proceeds. Everything else is detail around them.

How a promotion agreement allocates cost

The promoter funds the planning process from its own resources, takes the risk of refusal, and recovers its expenditure plus a promotion fee from the proceeds when the land is sold on the open market with permission.

The sequence in a typical agreement runs: promoter funds and runs the application, permission is obtained, the land is marketed, a sale completes, the promoter's costs are deducted from gross proceeds, the promoter's fee is calculated as a percentage of the balance, and the landowner receives the rest.

That alignment is the structural advantage over an option. Both parties want the highest price, because both are paid out of it. Under an option the developer buys the land itself, usually at a discount to market value, so the developer's interest is in a lower price while the landowner's is in a higher one.

The structural disadvantage is that the landowner's receipt is unknown until the land sells, and it is reduced by costs the landowner did not directly control.

Which costs are recoverable from the sale

The agreement will contain a defined term, often promotion expenditure or promotion costs. Read the definition before anything else in the document, because it determines what comes off the top.

Costs normally included:

• Planning application and appeal fees, and pre-application charges.
• The planning consultant's or promoter's agent fees.
• Technical consultants and surveys, including transport, ecology, drainage, heritage, arboriculture and ground investigation.
• Masterplanning and architectural work to application stage.
• Legal fees on the planning obligation, including the authority's costs.
• Marketing and sale agency fees, and legal fees on the disposal.
• Landowner's reasonable professional fees, where the agreement provides for them.

Items worth negotiating:

• Interest or a finance charge on the promoter's expenditure, which can materially increase the deduction over a long promotion period.
• Internal management charges and staff time, which should be defined rather than left open.
• Abortive costs on a withdrawn application or a refused scheme that is then resubmitted.
• Costs of an appeal, including advocacy and expert witnesses at inquiry, which can exceed the cost of the original application.
• Value added tax, and whether recovery is of gross or net amounts.

The technical reports are the bulk of it on a greenfield site, and they are the part the landowner can sense-check. Knowing what a planning agent's fixed fee usually includes and what an environmental screening exercise costs makes the budget legible, and the cost of an EIA screening and scoping request is a line that appears early on larger sites.

Caps on promotion expenditure

A cap is the landowner's main protection and it is where the negotiation concentrates.

Two refinements make a cap work. A provision that expenditure above the cap is irrecoverable unless the landowner has approved it in writing, and a separate sub-cap for appeal costs so that a decision to go to inquiry is a decision the landowner participates in.

Index linking cuts both ways. A cap indexed to construction or consultancy inflation protects the promoter on a long promotion, and the landowner should expect to concede something here on a site that may take six or eight years through a plan review.

Approval of the planning strategy and budget

The landowner's control comes through consent rights, and they should be specific.

1. Approval of the planning strategy, including whether the site is promoted through a local plan allocation, a planning application, or both.
2. Approval of the application scheme, including the quantum and the description of development.
3. Approval of the annual budget, with a mechanism for variation.
4. Approval of any appeal, and of the procedure chosen.
5. Approval of the heads of terms for any planning obligation, since obligations reduce land value directly.
6. A minimum price below which the land cannot be sold without consent.
7. Rights of information, including copies of all submissions and correspondence.

The obligations point deserves emphasis. A section 106 package with substantial affordable housing, education and open space contributions reduces the price a developer will pay, so the landowner's receipt falls even though the promoter's costs are unchanged. The promoter has an interest in obtaining permission and the landowner has an interest in obtaining a valuable permission, and those are not identical.

Where viability is argued to reduce obligations, the evidence has to stand up to the authority's own consultant, and the cost of that exercise is another line in the budget.

What happens if permission is refused

On a refusal the promoter has spent the money and recovered nothing, which is the risk it is paid to take.

Three mechanisms then matter.

The term. Promotion agreements run for a fixed period, frequently with extensions triggered by events such as a plan review or a pending appeal. A landowner should know the longest the land can be tied up.

Termination rights. A landowner will want to terminate where the promoter is inactive, misses milestones or becomes insolvent, and the agreement should say what happens to the work product and the planning permission on termination.

Treatment of costs on termination. Usually the promoter walks away with nothing, but some agreements provide for recovery of expenditure if the landowner terminates without cause or sells to a connected party, so read those provisions as drafted.

Restrictions on title are the practical consequence. The agreement will usually be protected by a restriction registered at the Land Registry, which prevents a sale without the promoter's consent for the term. That affects the landowner's ability to raise finance against the land.

Option agreements compared on cost

Under an option the developer pays a modest option fee, funds the application, and acquires the land at a price set by formula, commonly market value with a percentage discount and sometimes with planning costs deducted again.

The cost comparison is about where the costs land rather than which route looks less expensive.

In a promotion agreement the planning cost is a transparent deduction from a market price. In an option it is often embedded twice, once in the discount and once in a cost deduction, and the landowner has less visibility of what was spent because the developer is spending it on its own behalf.

The counterweight is certainty. An option gives a known buyer and a known formula, and for a landowner who wants a clean exit without exposure to marketing risk that can be worth more than a higher theoretical price.

Where the land is agricultural, an Agricultural Land Classification survey often appears early in either structure, because the grade of the land affects both the planning case and the strength of any objection to the loss of best and most versatile land.

Questions to settle before signing

Take these to your solicitor and your land agent, in this order.

What is the cap, on what base, and is appeal expenditure separately capped. Is interest charged on expenditure, at what rate, and from when. What is the promotion fee percentage and is it taken from gross or net proceeds. What is the minimum price and how is it reviewed. What approval rights do I have over the scheme, the budget and the obligations. How long is the term and what extends it. What happens on refusal, on termination and on insolvency. Who assumes Community Infrastructure Levy liability, since under the levy regulations liability defaults to the owners of the land where nobody assumes it. And what are the tax consequences of the structure, which is a question for a specialist adviser rather than a planning one.

The honest uncertainty is timing. A promotion agreement on an unallocated site depends on a plan process whose timetable is outside both parties' control, and the deduction grows with every year of delay. Ask the promoter for its programme and its assumptions about the plan, then read them sceptically.

PlanScope pricing gives a fixed figure per report, which is a useful benchmark when you are reviewing a promoter's budget line by line.

This is general guidance, not legal advice; check the position with your local planning authority or a qualified professional before relying on it. PlanScope provides AI-assisted draft reports for planning applications. Reports should be reviewed before submission. We do not guarantee planning approval.