In principle, a land agreement is a simple matter: a site has potential and the owner, who lacks the skills to develop it, enters into an agreement with an experienced developer to do so. The agreement will need to cover matters such as the responsibilities of each party, responsibility for payments and how profits are to be divided between them.
The reality, however, is much more complicated. An agreement is typically made at a very early stage, well before a planning application, when the scale and nature of the development, the costs, profits and values are extremely uncertain.
Many years can elapse between signing the agreement and successful completion of the development, during which time the market, values and even legislation can change radically. In this complex environment, unforeseen events can often cause problems. So too can inadequately drafted agreements, which may have been drawn up by advisers with limited skills or experience in this specialised area of practice.
The resultant disputes between parties can lead to expensive and time-consuming litigation. Given the government's declared policy target of constructing 1.5m new homes by 2029, there is now also pressure from the top to reduce such delays.
Ministry of Housing, Communities & Local Government (MHCLG) is liaising with RICS, and land agreements are coming under close scrutiny. There are proposals to register new land agreements and RICS' advice to its members in this area is of particular interest
Bratt v Jones Court of Appeal decision
Meanwhile, the case of Bratt v Jones (Court of Appeal 2025) EWCA Civ 562 has illustrated the importance of valuation issues in land agreements, and it has highlighted the scale of the financial consequences to the parties involved.
In this case the landowner, Rowland Bratt, claimed that the independent expert, Nigel Jones, who was appointed under the terms of an option agreement dating from 2002, had incorrectly valued the land subject to the agreement following the grant of outline planning permission in 2012 for the construction of an 82-unit housing development.
Although the case was complicated by a number of other issues, Mr. Jones' valuation of £4,075,000 contrasted starkly with Mr. Bratt's figure of £7,800,000. The court set the value at £4,746,860. The case highlights a number of important issues.
- Valuations are a key component in any land agreement, The surveyors involved, both at the drafting stage and when valuations are required, are therefore in the front line.
- Development sites are notoriously difficult to value and there is usually a wider margin of error than would be the case for developed property. In Bratt v Jones, the Court of Appeal judgment supported the trial judge's +/-15% margin of error, which was contrasted with a +/-10% figure for a less complex property.
- The property in this case benefitted from outline planning permission. Prior to permission being granted, the margin may well be greater.
- Heads of terms for a land agreement must make clear provision for valuations to be carried out at the appropriate times, and there must be provision for dispute resolution in the event of disagreement.
- Professional advisers to both sides must have appropriate qualifications, and the relevant skills and experience in this niche area of practice.
With the above issues in mind, RICS has published a new professional standard to provide advice for members involved in drafting and finalising heads of terms for land agreements.
Standard sets out alternative agreements
Land agreements for development purposes sets out some common heads of terms, though it emphasises that there is no off-the-shelf format for an agreement because the nature of the site as well as the circumstances and requirements of the landowner and developer will always be unique.
The standard also examines the respective roles of surveyors and lawyers, and emphasises two key issues with which RICS members will be particularly involved.
The first is valuation; as recently scrutinised in Bratt v Jones [2025] EWCA Civ 562.
The second issue is measurement, both of the site and the completed development, the accuracy of which can significantly affect the scheme's outcome. Measurement should be carried out in accordance with the RICS Code of Measuring Practice.
While there is no common format for a land agreement, the standard looks at six frequently used approaches in detail, namely:
- conditional contracts
- option agreements
- pre-emption agreements
- overage agreements
- land promotion agreements
- hybrid agreements.
'While there is no common format for a land agreement, the standard looks at six frequently used approaches in detail'
Conditional contracts depend on fulfilling conditions before sale
In a conditional contract, the developer will agree to purchase land with development potential, subject to certain provisions being satisfied. The most important of these is likely to be the grant of satisfactory planning permission, and it will not be under an obligation to purchase if this and other such conditions are not met.
The contract will therefore need to define what constitutes satisfactory planning permission. This will be different in every case, but a common factor will be that the permission granted must result in a satisfactory financial outcome for both the landowner and the developer.
Factors such as the size and nature of the permitted development will be important, as will be the conditions to which the permission is subject, especially matters such as the requirement to include social housing in a residential scheme, or a condition to fund off-site infrastructure improvements. The developer will usually be responsible for obtaining planning permission and will often be required to pay an upfront deposit.
The contract sum, payable once planning permission has been granted and other conditions fulfilled, must be defined. This may be a fixed amount or, alternatively, calculated by a formula which will usually be based around the size and nature of the permitted development.
The allowable costs of obtaining planning permission must be defined as well, given that these will usually be deducted from the gross profit when calculating the contract sum.
A conditional contract will also need to cover matters such as the development timetable, the handling of planning appeals and the provisions for dispute resolution.
Option agreements can offer greater flexibility
An option agreement is similar to a conditional contract, but the developer is not obliged to purchase the land.
As with the conditional contract, the developer will usually be required to promote the site and obtain satisfactory planning permission. It may then exercise its right to purchase the land on the agreed terms.
The form of the land agreement will be broadly similar to that for a conditional contract. It will deal with matters such as the responsibility for obtaining planning permission, what constitutes satisfactory permission and how to deal with planning appeals.
The agreement will also cover the length of the option period, calculation of the sum to be paid to the landowner, and how and in what circumstances the agreement can be terminated.
Pre-emption requires clear terms for preferential rights
In contrast, a pre-emption agreement grants the developer a preferential right to purchase if the landowner decides to dispose of the land. This will be of benefit to the developer, especially if it owns adjoining land, though it may restrict future dealings by the landowner.
The landowner is under no obligation to sell the land but, if it decides to do so, the developer has the right – though not an obligation – to purchase it on the agreed terms.
The agreement must define the purchase price. If this is not a specified amount – for instance, if the agreement is for sale at the market value when the right is exercised – there must be provision for appointing an independent valuer in the event of a dispute.
Other key issues include defining how the pre-emption is triggered and operates, as well as the timetable and termination provisions.
Overage agreements allow for improvements or profits
An overage agreement provides for the developer to make an additional payment, or overage, to the landowner in certain specified circumstances after a sale has been completed.
The landowner can therefore sell the land at a price reflecting its unimproved value and subsequently receive a further payment after, for example, the grant of planning permission, an improvement in an existing permission, or better than expected sales of the completed development. An overage agreement may also be applicable if the developer purchases the site and then sells it on at a profit.
The agreement must state how the overage amount is calculated. It will also set triggers for payments, as well as defining the developer's obligations to maximise the value of the site, obtain planning permission, appeal unsatisfactory planning outcomes and undertake permitted development.
An overage agreement is attractive to both the developer and the landowner, but inherent complexities, as outlined above, can add to the challenge of drafting the final contract.
Promoters can be appointed in joint ventures
Under a land promotion agreement, the landowner will appoint a promoter who will be responsible for obtaining planning permission and carrying out any other necessary works to prepare the site for development before marketing the site for sale.
After the sale the promoter will be due a fee, usually based on a percentage of the difference between the land's original value and the sale price. There will, however, be an adjustment to reflect the promoter's costs.
As land promotion is a form of joint venture agreement, both parties will have a common interest in maximising the extent of the development and achieving the best price on sale. The payment to the promoter will be based on a known sale price, which will eliminate the uncertainty of relying on a valuation, as can occur in other forms of agreement.
The agreement will define the parties' common objectives as well as the obligations on both sides. The promoter, for example, will prepare development plans, appoint consultants, apply for planning permission and promote the site for sale. Meanwhile, the landowner must obtain vacant possession and agree to sell at the appropriate time.
The costs of promotion, responsibility for payment and formulae for distribution of the net sale proceeds must also be defined.
Hybrid agreements combine option and promotion approaches
Finally, hybrid agreements are a combination of option and promotion agreements. They are often used for larger residential schemes that are developed in phases.
Such an agreement allows the landowner to benefit from a developer's expertise in securing an implementable planning permission while ensuring market testing occurs for parcels of development sold through land promotion agreements.
A hybrid agreement will need to define the phasing of the scheme and the split between option and promotion phases, detailing the typical requirements of each. It must also allocate responsibility for managing the site as a whole during development, as well as clarifying responsibility for ongoing matters such as infrastructure provision.
However, as hybrid agreements can be complex, the landowner must be sure that this is preferable to a more straightforward land promotion or option agreement.
The property development process is complex, time-consuming and littered with unexpected challenges. The sums of money involved are often huge. Furthermore, efficient property development a key element in the current government's housing policy.
It is surveyors who navigate their clients through this process, and Land agreements for development purposes will be vital in helping them do so.
Related competencies include: Housing management and strategy, Planning and development management, Valuation