What is a Land Collaboration (Consortium) Agreement?

Specialist land development solicitor, Laura Gale, takes a look at how a Land Collaboration Agreement can be implemented.

The purpose of this type of agreement

Often, the best way for a landowner to maximise development opportunities for their land is to join forces with neighbouring landowners.

A greater land offering may make a development scheme more viable and, importantly, profitable. For example, a landowner may have a sizeable area of land but, alone, it may not be wide enough to facilitate a new access road, or may lack sufficient visibility splays. However, combined with the land next door, it may constitute a feasible site for development of a greater number of units, with better infrastructure, and may be more likely to achieve planning permission.

Objectives of a Collaboration Agreement or Consortium Agreement

Collaboration Agreements, sometimes referred to as “consortium agreements”, have varying levels of sophistication, and various uses.

Landowners may opt to “self-promote” combined land for planning consent. In those circumstances, a Collaboration Agreement will document a binding agreement between landowners for the promotion and marketing of development land. Usually, the landowners will be obliged to:

1. jointly apply for planning permission for the combined area of development land. That same planning permission must be satisfactory to all landowners, and what classes as a “satisfactory planning permission” (“SPP”) will be set out in the Agreement; and
2. following the grant of SPP and expiration of all challenge periods, the landowners will market and sell the combined land benefitting from SPP, with the burden of any planning, marketing and sales costs being shared in the same fixed proportions as the benefit of the gross sale receipts.

The Agreement will commonly set out the planning objectives and strategy, and timeframes for submitting applications to the local planning authority.

However, some Agreements will be more comprehensive, dependent on, amongst other items, the extent of land involved, the envisaged development, and the number of landowners who will be party to the Agreement. For example, some landowners may negotiate a pre-emption right in favour of one landowner, giving that landowner a right of first refusal to purchase the development land at market value following the grant of SPP, before it is listed on the open market. This right can be incorporated in the Agreement.

Some landowners prefer to take a backseat with the planning process. It may be that a developer or promoter has been identified at an early stage, and it is they who will assume responsibility for these roles. If that is the case, each landowner may choose to enter into a separate Option Agreement or Promotion Agreement with the developer/promoter, and the landowners may then enter into a Collaboration Agreement with each other which will operate in the background. In such circumstances, the Collaboration Agreement will often oblige the landowners to comply with the terms of their respective Option/Promotion Agreements, owe a duty of good faith to each other, and will also deal with calculation of sale proceeds and any equalisation methods.

Other times, landowners may opt to form a new company, or in some cases, a Trust, with a view to each transferring their land into that company name. It will then be the company that contracts with the developer or promoter. In such circumstances, a Shareholder’s Agreement should be considered to document the obligations of each landowner in relation to the company. This will document what happens if one or more shareholders dies or wishes to resign, and any pre-emption rights obliging a shareholder to offer their shares to the remaining shareholders before selling, transferring or bestowing them upon a third party.

It is always recommended that landowners take advice from an independent land agent before negotiating with each other and with any developer or promoters. Land agents* differ from residential estate agents in that their expertise allows them to review site context and relevant policy, carry out site assessments and consider potential development strategies and likelihood of obtaining SPP. Such advice can assist with neighbour and third-party negotiations.

BNG Considerations

Provision of biodiversity net gain (“BNG”) on site will need to be considered where the need to allocate parts of the combined site for BNG may result in a need for equalisation between landowners, or require other cooperation. Where this is the case, the agreement should be properly documented.

*A land agent may be able to introduce ecological consultants as necessary, which may assist with considering what effect delivery of BNG may have on the intended scheme and ultimate purchase price.

Price and Equalisation

Agency advice may well give landowners a steer when it comes to land value. If any minimum price(s) are agreed, these will be documented in the relevant agreements, as will any pre-agreed deductions.

When collaborating with other parties, it may be that landowners choose to incorporate provisions whereby the sale proceeds will be divided so that each landowner receives a sum which represents a fair and reasonable proportion of the value of the whole development area. For example: one landowner may find that the majority of their land will be utilised as a new access road, and not new-build plots themselves. They may feel this should not mean their share ought to be less, as the development could not take place without the access road and, ergo, their land. This principle is known as “equalisation”. Equalisation can be achieved in a number of ways and will often take into account the various landholdings, the size of the development area, and the extent of infrastructure and BNG requirements.

Tax Considerations

In addition to agency advice, landowners are always advised to seek independent tax advice from a suitably qualified professional before negotiating with neighbouring landowners and, subsequently, buyers/developers, or promoters.

Combining land for joint planning promotion may be inefficient from a tax perspective. A tax advisor will be able to advise – before Heads of Terms are drawn up – on methods of preventing multiple taxation of sale proceeds, preserving tax reliefs, capital gains tax liability, potential land pool trusts, and ensuring that tax liability arises at the intended point in the transaction or onward transactions. The latter may be particularly important where it has been agreed that overages shall apply, meaning that one or more of the landowners may be entitled to further payments in future. This can happen if their land increases in value after a “trigger event” occurs (usually the grant/implementation of further planning permissions, or permissions for a different kind of development, or a sale with the benefit of such planning permission).

The specialist Land and Development Solicitors at Holmes & Hills can help with a Collaboration Agreement, and can provide advice to land owners and developers regarding their own unique circumstances.