Buying or selling land? You need to know about option agreements

If you’re considering selling land to a developer, an option agreement is the practical, low-stress choice to get your land from potential to the point of sale. Option agreements are one of the main ways land for development is bought and sold in the UK. Here’s what you need to know:

What is an option agreement?

An option agreement is a type of contract between the landowner and developer, where the developer works to get the best planning permission and the seller gives them time to achieve this. The purpose is to maximise value and certainty for both parties.

The option contract grants the developer a right to purchase the land within a certain time frame, at a pre-agreed price, and to the exclusion of anyone else. The developer has the option to purchase the land at any point (within the agreed period) but not the obligation to do so. The landowner gets experienced professionals to cover the work and cost of obtaining planning, and a price structure for the purchase.

Keep in mind that obtaining optimal planning permission is the key that unlocks significant value for both parties. Otherwise, endless uncertainties about what might be possible are priced in and cause the land value to fall.

At Landhaven, our projects are based on strong design principles, quality craftsmanship, and unwavering respect for the environment and the local community. If you’re looking for collaborative property development opportunities that maximise potential and work well for all involved, get in touch.

How do option agreements work?

When a landowner decides to sell their land, the typical procedure involves inviting a developer to submit an offer for its purchase. Developers would then assess the land’s maximum potential for planning permission, and value the land accordingly. They then propose a fixed price to the landowner, contingent upon obtaining the required planning permission.

Both parties negotiate additional terms, including the duration of the developer’s planning process, and formalise the agreement with a contract drawn up by a solicitor. Once signed, the developer commences efforts to secure the most favourable planning application.

The length of the agreed option period will depend on the size of the proposed development project. As such, option periods can range from one year to 10 years. Once an option agreement is set up, the developer has the choice to exercise it (proceed with the purchase) at any time, or not at all.

If the developer chooses not to exercise the option within the agreed period, the option agreement will expire. The landowner is then free to explore other opportunities for their land, still with the benefit of whatever work the developer has carried out and made publicly available (e.g. a planning application).

Case Study

The Edwards Family and Landhaven: A life-changing project to financially secure the next generation

The Edwards family contacted Landhaven about a potential development site in Portishead. They needed help to both deliver financial security and to honour their parent’s wishes and the history of the land they’d cared for since the 1960s.

Having received some advice about selling the site and being told they would need to get planning permission first, the family felt deterred. With no idea or expertise on how to do this, and without the time or the financial resources needed, they arranged to meet with us.

We understood the family’s position and offered an option agreement. This meant no upfront costs and zero risk for the Edwards family. We did all the work required for a high-quality planning application and covered all the costs involved, including legal fees. In return, the Edwards family gave us the time and exclusivity to run the project. Read more >>

“The option agreement was the right solution for me, and the proposed style of development is right for the location and my family.”

~ The Edwards Family

Why are option agreements optional?

Having invested significantly in time and resources to secure planning permission, in most cases, developers are eager to exercise the option agreement and proceed with the purchase. However, the optional nature of the agreement serves as a safety net for the developer, in case they don’t get the planning needed to make the project viable. Occasionally, unforeseen circumstances (such as market downturns or funding shortages) during the often lengthy planning process, may necessitate alternative courses of action. Therefore, an option agreement affords developers additional flexibility and mitigates potential risks.

Advantages of option agreements for a landowner

Option agreements typically have a fixed purchase-price structure. This gives the seller certainty about the price they will get for their land. With an option agreement, the landowner gains access to a team of experienced professionals at no cost to themselves. These experts navigate the planning permission process and seek the best possible planning gain. For many landowners who lack the time, expertise, or resources necessary for this endeavour, such support is invaluable. Option agreements empower landowners to unlock the full potential and value of their land for development, without having to be directly involved in the complicated, costly, and stressful process of surveys, designs, reports, applications, and discussions involved in securing good planning permission.

Advantages of option agreements for a developer

Primarily, an option agreement provides the developer with time and flexibility. It grants them an agreed period to thoroughly explore the project’s potential before committing to the purchase, safe in the knowledge that there’s no risk of the landowner selling to someone else. Should the land turn out to be unsuitable, they can allow the agreement to end, and are not obligated to purchase the land.

Case Study

The O’Dea Family: Four siblings sell a long-held family property to Landhaven via an option agreement

With the buildings and infrastructure on their site in disrepair, the O’Dea family were looking for a long-term plan for land use that would not only maximise the value and future potential of the site but also deliver a solution that was sympathetic to its surroundings and that would benefit the local community. Read more >>

“Andrew went to exhaustive lengths to ensure every aspect of this project was fully considered from a client and a community perspective. He engaged with all stakeholders on our behalf, and addressed any potential challenges by presenting positive solutions to deliver an extremely comprehensive planning application for an exciting and sympathetic development that will benefit the local community going forward.”

~ The O’Dea Family

What are the risks?

For sellers, entering into an option agreement means committing to a specific period during which they cannot sell the property (while the developer explores planning possibilities). Sellers must be comfortable with this temporary limitation.

Once the agreement expires, sellers regain full control over their property and are under no obligation to the developer. They are free to pursue any course of action, including benefiting from any work the developer has conducted and made public.

Some sellers may feel a loss of control, particularly in the planning process. In cases where such concerns arise, option agreements can include provisions to address them, such as requiring seller approval before certain actions are taken, for example, the submission of a design proposal.

What are the alternatives?

Alternatives to option agreements include an unconditional purchase, exchange with delayed completion, unconditional purchase with coverage, promotion agreement, conditional contract, or vendor finance.

Option agreements are a practical and popular way for landowners to maximise the value of their land and profit from selling it, without the work, cost, and hassle of going through the planning permission process themselves.

At Landhaven, our projects are based on strong design principles, quality craftsmanship, and unwavering respect for the environment and community. If you’re looking for local, collaborative property development opportunities in the Bristol area, get in touch.

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