Hybrid Agreements are becoming increasingly common in the strategic land market. Where development schemes are 600+ units they are beginning to prove more advantageous to landowners than simple Option or Promotion Agreements. While they are a blend of these two structures, they offer a lot more.
There are many who feel that Option Agreements are not fit for purpose Landowners and agents are often frustrated with the difficulty in agreeing value with housebuilders. Negotiations are often protracted, costly and can result in Expert Determination.
With Promotion Agreements the sale of large-scale areas of land without infrastructure can create delivery problems and although these can be overcome the sale process can become difficult. Promotion Agreements also have the challenge of carving up infrastructure requirements and Section 106 financial liabilities. Should landowners be involved in the delivery stage of the promotion, there are tax implications and specialist advice should always be sought from the outset.
Hybrid Agreements are suitable for larger strategic sites which might be delivered in phases. Some phases will be bought by the housebuilder partner with at least 50 per cent usually being sold in the open market on a fully serviced basis. There is a tax-efficient methodology of ensuring that infrastructure can be installed prior to the sale of serviced parcels.
Another benefit of the Hybrid Agreement is the ability, having chosen the right housebuilder partner, to deliver gateway housing which sets the tone for the wider scheme, and to commence a process of placemaking so as to enhance value on the phases sold in the open market.
Hybrid arrangements are flexible allowing the housebuilder to deliver an element of the scheme but with the open market sale element creating a firm understanding of land values. They also have to be dealt with on an open book basis giving landowners the security of knowing they are getting the best price.
The way Hybrid Agreements are structured is very similar to an Option Agreement save for the areas dealing with infrastructure installation and open market sales which will need to be the subject of specific tax advice.
Hybrid Agreements tend to extract the best features of Promotion and Option Agreements, benefitting both sides. The landowner has the benefit of choosing a partner who might focus on quality gateways and placemaking or simply take a commercial approach to the whole operation.
The strategic land market is seeing more entrants who are utilising these new agreements to create long-term and additional social and financial value for the landowner. They are definitely a sensible way forward and we already see some promoters looking for ways to create the opportunity from installing infrastructure albeit tax hurdles are significant.
The autumn Budget may make life more difficult for landowners but interestingly if the gap between Income Tax and Capital Gains Tax narrows significantly then landowners will be looking at other ways of bringing their land forward including joint ventures and build license arrangements. We could see a significant change in the market on the horizon.
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