Vat On Land Promotion Agreements

Dec 20, 2020 by     No Comments    Posted under: Uncategorized

In recent years, land-use agreements between landowners and developers have become more common than traditional option agreements. If there is a risk that the proponent will also deal with competing sites that may affect the likelihood of success, the landowner should respect the developer`s agreement not to market competing sites. Whichever agreement is chosen, a landowner should be advised and carefully considered the tax situation. If a promotion contract is chosen, there are two immediate concerns. First, that the developer is required to collect VAT on all payments it receives (i.e., reimbursement of its transportation and development costs and its percentage share of the proceeds of the resulting net sale); second, landowners and developers run the risk of being treated in partnership and taxed as such. Under this agreement, a developer assumes responsibility for securing the building permit and also has the option to purchase the land at a given point (usually once the planning is complete). The purchase of the developer is made at an agreed price that generally reflects the market value of the land, net of compensation for the guarantee of the building permit and perhaps instead of a levy that would otherwise have been levied. Options are usually time sensitive and a fee can be paid to back up the option, as well as extend it if necessary. The landowner should consider controlling the developer`s costs, which are ultimately deductible from the sale price. As the developer will not purchase the land itself, he will not have to pay SDLT.

Option agreements are therefore the most widely used and most landowners are familiar with this model. “If a transportation option or agreement is most appropriate, it depends on how narrow your involvement in the planning and promotion process is,” says Ben Mitchell, commercial real estate lawyer at Parnalls Solicitors. “An option agreement leaves the planning and marketing process largely in the hands of the developer. Under a transportation contract, the landowner is much more convenient and will know the value of the land before agreeing to sell it. But there are also risks for the developer. What happens if the landowner has changed his mind or, for whatever reason, cannot continue the agreement? The proponent will reasonably want to protect the significant expenses that have been incurred only in the event that something does not happen.

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