The tried and true method for property owners looking to sell their property for development purposes is usually to list it with a Real Estate agent and sell to a developer or in some cases they may sell direct to the developer off market. What is less understood by many sellers is the alternatives to a normal sale, that is, a structured agreement with an experienced developer which would enable the Seller to increase the value of their property further.
The two most common structured agreements that a Seller may enter with a Property Developer are:
- Joint Venture Agreement
- Development Management Agreement.
A Joint Venture Agreement will involve the parties entering into an agreement to deliver an agreed project outcome over the site. The parties may provide equally or proportionately to the Joint Venture in sofar as land value, equity, debt and experience is concerned. Profits would then be split proportionately and the vendor would receive the agreed land value at completion of the project or in some cases may receive part or all land value at commencement of the project.
A Development Management Agreement will typically see the land owner unchanged throughout the course of the project, with the developers engaged to deliver the project on behalf of the land owner. The land owner may fund in part or full the development costs and the profit share upon completion would then reflect the contributions of each party to the project. In the case where the land owner fully funds the project, then the Development Manager may only be paid a fee for service whilst the land owner would retain the majority of project profits.
Either of these structured agreements is set out to maximise the revenue received by the land owner as either land value uplift or profit from the development activities carried out over the site. It is possible that there are tax benefits such as Stamp Duty savings that can also be achieved under a structured agreement subject to the appropriate legal and tax advice based on individual circumstances.
With many development site sales being conditional upon the purchaser (Developer) obtaining satisfactory Due Diligence and Development Approvals, which can usually take 12 months or more, a structured deal would allow the land owner to greatly improve their financial returns with only a slightly smaller increase in time.
McAndrew Law is a specialist Property Development Legal Firm, part of the McAndrew Group and is available to answer your questions regarding your next Joint Venture or Development Agreement.
M: 0408 748 226