Option Agreements - A Move Towards Strategic Land & Things to Consider

With COVID-19 impacting on the way we work and do business, it is not surprising that we are seeing an increase in demand for strategic land opportunities. More and more landowners are being approached by developers wanting to take an Option over their land and we have set out below some points to consider.

In simple terms, what is an Option Agreement?

In return for a usually non-refundable sum, the landowner grants the developer an option to purchase their land subject to them obtaining planning permission.

The attractiveness of an Option Agreement

Option Agreements can be attractive from both the landowner and the developer’s perspective.

From a Landowner’s perspective

  • A landowner can achieve a much higher price for the land than they would do selling at its agricultural value if planning permission is obtained.
  • A landowner may also continue to use the land up until the developer chooses to exercise the Option.

From a Developer’s perspective

  • An Option Agreement affords greater flexibility in terms of whether they would like to purchase the land in future.
  • The initial option sum payable to the landowner is often a fraction of the full purchase price and therefore a significant amount of money is not being parted with up front.

Things to consider

  • TIME – is there adequate time for the developer to obtain planning permission? Extensions to option period for appeals?
  • LAND – what is the extent of the land to be transferred – will a plan need to be drawn up and is sale by phases likely?
  • TITLE – does the registered title cause any issues?
  • PRICE – will this be fixed or based on a % of market value?
  • TAX – what tax implications are involved?
  • RETAINED LAND – unlocking for future development
  • CONSTRAINTS- restricting land dealings during option period
  • PROMOTION – land promoted into local plan for future development

We would advise that you always seek legal assistance when proceeding with an Option Agreement due to their complex nature. For further information, please contact me and I will be happy to assist.