BGBG

Option Agreements

Have you found the perfect site for your next development but don’t want to actually purchase it until you have planning permission for the site?

Have you found the perfect site for your next development but don’t want to actually purchase it until you have planning permission for the site?

An option agreement is a contract entered into by the owner of land or property and a potential purchaser of the land or property that allows the purchaser the opportunity to buy the land at a later date. This is known as a call option. A buyer usually asks for a call option over land when he wants to commit the seller to sell the land to him if and when the buyer definitely decides to go ahead with the purchase. In that way, an option agreement therefore gives the buyer the option (but not an obligation) to purchase, whereas the seller will be obliged to sell if the buyer exercises his option to buy.

Common reasons that a buyer will ask for an option over land include:

1. The buyer wants to secure planning permission for the site before actually purchasing it. This is the most common reason for option agreements.

2. The buyer may need time to raise purchase money, investment or borrowing.

3. The buyer may need the consent of third parties to be able to complete the purchase.

4. The buyer may be in competition with another buyer but wants to secure a right to buy whilst giving himself time to make further enquiries.

For more information on option agreements...

Please do not hesitate to contact an Everyman Legal Solicitor on 01993 893620 for a free discussion or email geoffrey.cotterill@everymanlegal.com

If I want to secure a call option over land will I have to pay the seller?

As the seller takes the risk with a call option agreement (i.e. they have granted an option to purchase to a particular buyer, so they cannot sell to someone else unless the buyer decides not to proceed) they are very frequently compensated for this with a payment from the buyer to the seller on completion of the option agreement. In other words the buyer purchases the option.

There isn’t really a standard calculation as to the amount you might want to offer a seller. The compensatory payment will depend upon the size of the site, the amount of time for which the option will last, the cost of the land if the option is exercised, expenses such as professional fees and even the likelihood of actually achieving the reason for the option (e.g. obtaining planning permission). In addition, a buyer will have to consider the amount of profit he might make if he acquires the land successfully and fulfils his plans, plus what his loss might be if he cannot acquire the site.

Of course, there is never any guarantee that a seller will not expect a lot more than you are offering for the option either.

Legal considerations

An option agreement needs to be very carefully thought through and drafted as, if the option is exercised, the agreement is a legally binding contract for the sale of the site. You should always take early legal advice in order that your interests are best protected. The option agreement will need to cover lots of scenarios and points including the following:

  • The length of the option period. The buyer will be concerned to make sure that it has plenty of time to complete the necessary action (e.g. obtain planning permission). However the seller will not want to be “locked in” to selling for an indefinite or excessive period.
  • The extent of the site being purchased. Preferably this should be set out by reference to Land Registry title numbers and agreed plans.
  • The conditions which must be met for the option to be exercisable.
  • The amount paid for the option and any payment terms.
  • The procedure for extending the duration of the option, if applicable.
  • The actual purchase price of the site. Will this be a set figure or a valuation calculation? Will the seller of the site receive any additional upside from the development?
  • The procedure for terminating the agreement and the conditions under which this can be done.

Our dedicated team of solicitors, based in Witney, Oxfordshire, would be happy to answer your questions.

Contact Us

I want to sell a site. Can I buy an option to sell it to someone?

Yes. This means that the seller of the site will purchase an option to sell the land to the buyer of the site, so if and when the seller decides to go ahead with the sale he can oblige the buyer to purchase in line with the terms of the contract. This is known as a put option.

Call option agreements contain both a call option and a put option. So, either the buyer or the seller can trigger the land sale at a particular point in time.

Are option agreements registerable at the Land Registry?

No. there is no need to have an option agreement registered but it can be if the option holder wants to protect his interest.

I was very impressed with the team. Everything was dealt with promptly. I felt completely safe in their hands, every detail that I needed to be aware of was explained clearly.