Entering Into An Options Agreement? Our Top Tips
As the demand for housing continues to rise year on year, many landowners are looking at the possibility of selling their land to developers. Given the flexibility of such agreements, Option Agreements are becoming an increasingly popular choice for developers.
Option agreements grant developers an option to purchase land by exercising their right to buy at any time during an agreed period.
So, what are your options? Here are some top tips for housebuilders agreeing terms with a landowner for an option agreement:
- How long is the option going to last for?
If this is an immediate site, you will need enough time to carry out any due diligence required, obtain planning permission and secure any funding required. If this is a strategic site, in addition to the above, you will need to think about long is needed to bring this site forward.
- Are there any extensions to the option period mentioned above? For example, if at the date the option is meant to expire, there is a pending planning application. Can the option continue until the planning application is decided and any Judicial Review period has passed?
- Is the purchase price fixed, or is the price to be calculated on another basis? For example, perhaps the purchase price will be calculated on the basis of the property’s market value, with the benefit of planning permission, at the time the option is exercised?
- If only part of the land is being purchased, what rights, if any, are required over the owner’s retained land?
- How long is required between exercise of the option and completion? If you are seeking third-party funding, you need to ensure that there is a sufficient period of time to get your funds in place.
- Are you paying the landowner anything on exchange of the option? For example, a contribution towards their legal fees, or a sum of money as an incentive for entering into the option agreement.
Our Real Estate Development team are experienced in all aspects of Real Estate Development and, so if you are looking at an Option Agreement, then allow us to assess the terms and help you make the right decision.