Keeping your options open: Option Agreements

by | Jan 10, 2018 | Blog Posts

Land is an increasingly precious commodity in the UK. Companies are soon snapping up even the smallest parcels of land for development. If you are considering purchasing a piece of land (whether or not for development), other people may also be interested in that land. How can you make sure that the seller prioritises you over the other potential purchasers? We look at the ways to protect your position, including Option Agreements.

Where do I start?

The development opportunities with even a small piece of land are vast. No matter what size development you are considering, it is essential that you research before you go ahead with the purchase. Here are some things to consider:

  • Is there planning permission for the type of development you wish to carry out?
  • Will the local authority impose any charges for your development?
  • Is the land greenbelt?
  • Does the locality have any other disadvantages such as conservation area or development restrictions?
  • Are there any environmental issues to consider, for example contamination?
  • Is the land itself fit for building on?
  • Are there nearby water and drainage connections?

As you can see, purchasing a piece of land is not as straightforward as it may first seem. Thoroughly researching can take time, and there is of course a risk of another party ‘snapping up’ the land.

How do I avoid competition for the land from other parties?

If you are happy that the seller has given you all of the above information, you may wish to continue immediately with the purchase. However, the legal work can take some time to complete therefore you must bear this in mind.
Another option is to enter into an ‘Option Agreement’ with the seller. Within this agreement, the seller agrees to give the purchaser a right to purchase the land on agreed terms, and not to sell to any other party during the period of the Agreement. In return, the purchaser may be asked to pay an ‘Option Fee’ to the vendor in consideration of the agreement. This fee can vary depending on the demand for the land. An Option Agreement can contain provisions to allow the purchaser time to carry out its research, and to ensure that planning permission is in place.  There will usually be an agreed date by which the purchaser must exercise the Option.

What are the advantages of Option Agreements?

Option Agreements secure the deal for the purchaser if he wants to complete the purchase. However, if he decides he does not wish to go ahead (e.g. if he cannot obtain the necessary planning permission) then the agreement will come to an end. Should this happen, the Option Fee would be forfeited, along with any other costs the purchaser has incurred. However, these costs are likely to be minor compared with the costs of purchasing the land prior to making the necessary enquiries and applications.
The parties need to do minimal work at the outset to enter into an Option Agreement. Further, Option Agreements give purchasers flexibility. They know that they are the only party able to purchase, yet they are not committed to proceed with the purchase until they exercise the Option.
The vendor will also benefit from entering into an Option Agreement. Firstly, he can charge an Option Fee. Secondly, it means that he can to put the obligation to apply for planning permission on the purchaser. Should the purchaser obtain planning permission, it is likely to increase the value of the seller’s land, even if the purchaser decides not to exercise the Option.
If you are considering purchasing a piece of land, no matter the size, our commercial and residential property teams can help. Contact us today on 0800 988 7756 for a free initial consultation.
Option agreements

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