Blog
Option agreements for landowners and developers
- Posted:
- 10 May 2023
- Time to read:
- 2 mins
With the ever increasing demand for property, landowners are considering selling some of, if not all of their land to a developer.
What is an option agreement?
An option agreement is a legal contract that gives a developer the right to purchase land or property from a landowner.
An option agreement benefits both landowners and developers:
- a landowner has the comfort of a developer promoting their site for development
- the developer has some security with regards to future pipeline for delivery, typically at a discounted purchase price to reflect the planning risks.
What are the benefits for landowners?
The landowner can demand payment of an option fee or premium from the developer in exchange for the right to exercise the option. This would be retained by the landowner whether or not the option is subsequently exercised. The option fee is also in addition to the purchase price payable for the land when the option is subsequently exercised.
The developer will apply for planning permission at their own cost and risk. This allows landowners to propose their land for development without having to go through the lengthy and costly process of obtaining planning permission themselves. Landowners can take advantage of the experience and skills that developers have when it comes to obtaining planning permission.
How long does an option agreement last?
An option agreement will last from 3-5 years, however this is dependent on whether both the buyer and seller agree on a different timespan.
What is the difference between option agreements and conditional contracts?
A conditional contract is generally more formal than an option agreement. The terms of the option agreement could be the same as a conditional contract, but an option agreement will usually give the developer the right to terminate the agreement at any point.
Even if the developer has all the necessary consents required to develop the site, the developer would not be obliged to exercise the option. So, the option agreement route can give developers more flexibility than entering into conditional contracts.
For legal advice on this and other commercial property issues, please contact one of our Commercial Property specialists who will be happy to help.
