Option Agreement Solicitors

An Option Agreement may be commercially appropriate where a potential buyer considers that the value of the land is significantly dependent on obtaining planning permission which is not currently in place.

The buyer will commit, via an option agreement, to buy if planning is successfully obtained. The buyer will also want to ensure that the land/property is not sold to another buyer whilst they are trying to obtain planning permission.

Option agreements are often sought by developers over land and are also sometimes appropriate with commercial property leases. For example, if the landlord agrees, tenants may rent business premises with an option to buy the landlord’s interest.

From a seller perspective options should not be given lightly and there is often a lot to negotiate and include in an option agreement.

There are 4 different types of option agreements:

• Call Option – this is where the buyer had the right, but no obligation, to buy the property/land.

• Put Option – where the seller has the right, but not obligation, to sell the property/land to the buyer.

• Cross Option – the buyer receives a Call option and the seller gains a Put option in return.

• Reverse Option – Occasionally these are used to secure an overage payment. The seller receives the option to purchase the property/land back after the ‘trigger event’ occurs, if the overage payment is not forthcoming. The re-sale price will reflect the increase in value of the land/property back after the trigger event.

There is a lot of room for creativity in negotiating the right deal and this is where experienced property lawyers, like ourselves, can add real value. A few examples of agreements made by our clients include :-

• where potential buyers are given the right of first refusal. For example, a landlord granting a tenant the option to buy before anyone else. This can be a powerful incentive for the tenant to sign the lease, but it can be frustrating for the landlord.

• negotiating the option price. Will you set it now, or agree a formula for determining it based on outcome such as planning permission?

Option agreements might sound simple at first glance, but they can become complicated when you get into the detail.