Promotion agreements versus option agreements and what each means for funding the planning uplift

An option agreement gives a developer the right, but not the obligation, to buy a piece of land at a future date, usually once planning permission has been secured. In return for that right, the developer typically pays the landowner an option fee and takes on the cost and effort of pursuing consent during the option period.

The price the developer pays if it exercises the option is fixed in the agreement, often as a set figure or, more commonly, as a percentage of open market value with planning, frequently with a discount to reflect the developer's work and risk. The landowner agrees not to sell to anyone else while the option runs.

The defining feature is control. The developer drives the planning application, carries the promotion cost, and decides whether to buy at the end. If consent is refused or the numbers do not work, the developer can walk away and its loss is limited to the fee and the costs already spent. The landowner keeps the fee but has tied up the land for the option period.

A promotion agreement works differently. Here a promoter agrees to secure planning permission on the landowner's land and then take the consented site to the open market for sale, usually to a housebuilder or developer. The promoter funds and manages the planning process, but instead of buying the land, the promoter is paid a share of the eventual sale proceeds.

Landowner and promoter are broadly on the same side. Both want the highest possible sale price, because the promoter's fee is typically a percentage of the net sale value, often after the promoter's costs have been deducted. The more the consented land sells for, the more each party receives.

The promoter does not acquire the land and does not build. Its role is to add value through planning and then find the best buyer. This alignment of interest is the structure's main appeal to a landowner, because the promoter is motivated to maximise value rather than to buy cheaply. The trade off is that costs come out of the sale proceeds before the landowner receives the balance.

The two structures diverge on three questions: who drives the planning, who pays, and how each party is paid. Understanding these makes the choice much clearer.

• Who drives the planning: in both, the developer or promoter leads the application, but under an option the developer is pursuing consent to buy, while under a promotion the promoter is pursuing consent to sell.
• Who pays the costs: in both cases the developer or promoter funds the planning work, though a promoter usually recovers those costs from the sale proceeds before the fee is split.
• How each party is paid: under an option, the developer profits by buying at a discount to market value and the landowner receives the agreed price. Under a promotion, the promoter takes a share of the sale proceeds and the landowner receives the balance.

Put simply, an option can create a tension of interest, because the developer wants the purchase price low, while a promotion aligns interests, because both parties want the sale price high. That single distinction shapes much of what follows, including how each structure is funded.

For the landowner, an option offers certainty of buyer and a known pricing mechanism, but the discount to market value and the potential tension of interest can reduce the final receipt. A promotion tends to maximise the sale price through aligned interests, but the landowner carries the promoter's costs out of the proceeds and faces the open market rather than a committed buyer.

For the developer or promoter, an option offers control and the chance to secure a site at a discount, which suits a builder that wants the land itself. The downside is capital tied up in fees and planning costs with no guaranteed return. A promotion needs no land purchase and can suit a specialist that adds value through planning and moves on, but the reward depends entirely on achieving a strong sale price and recovering costs.

Neither is better in the abstract. An option suits a developer that wants to build on the land. A promotion suits a landowner that wants the highest sale value and a promoter that specialises in planning rather than construction. The right choice depends on intent, capital and appetite for risk on both sides.

The structure changes what is being funded and when. Under an option agreement, the developer often needs capital to cover the option fee and the planning costs during the option period, and then a larger facility to complete the purchase once consent is granted. That completion is a classic point for land finance: a bridge secured against the consented land value, sized around 65% to 75% of value after a strong consent, with interest rolled up, then refinanced onto development finance or repaid on a sale.

Under a promotion agreement, the promoter is funding the planning campaign rather than a land purchase, and repayment comes from a share of the sale proceeds rather than from building out. The funding need is often the promotion cost itself, and the exit is the open market sale of the consented site.

In both cases, pricing sits within indicative bands: land bridging around 0.75% to 1.1% per month, stronger consented cases moving towards senior debt from around 6% to 8% a year, facilities from £100k to £25m over 1 to 36 months. We match the facility to whichever structure and exit apply.

As a rough guide, an option agreement tends to suit a developer that wants to build on the land itself and is willing to commit fees and planning cost for the right to buy at a discount. It gives the developer control of the site and a clear route from consent to construction, which is why it pairs naturally with a land bridge into development finance.

A promotion agreement tends to suit a landowner who wants to maximise the sale value of the land without doing the planning work, alongside a promoter who specialises in securing consent and selling the site rather than building it out. The aligned interest usually produces a stronger sale price, and the exit is a market sale rather than a build.

Some deals sit between the two, and hybrid structures exist. What matters for funding is clarity: who controls the land, who is paying, and how the money comes back. Once that is settled, the finance follows. Planning gain and land finance for companies, developers, promoters and investors is unregulated commercial lending outside the FCA's regulated-mortgage perimeter, and nothing here is legal, planning, financial or tax advice, so take your own professional input before committing.