Option to buy land and property: additional price

This agreement includes provision for the exercise price to be paid in stages as the buyer's development proceeds. This enables the seller to share in any uplift in valuation between the date of the grant of the option and the (later) exercise date. The template also includes a detailed sale contract incorporating the Law Society's Commercial Conditions (3rd edition), with amendments tailored to this precise deal.

Suitable for use in: England & Wales and Scotland
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About this document

This option contract is for a situation where the ultimate sale price is not known in advance but is calculated after the event. For example, the buyer of the option wants to attempt to obtain planning permission. The seller wants a fair price - he does not want to see the buyer walk away with too large a share of “his” land value.

The price paid to the seller is calculated as a proportion of the increased value. The exact proportion is a matter for negotiation, reflecting the difficulty of raising the value and the risks and cost to the buyer in time and money.

The agreement provides for the option holder's task to be specified. It could relate to the grant of planning permission, the award of a licence, the outcome of an election, or a geological report.

An alternative agreement for this situation would be a conditional sale contract. For the option holder, the attraction of this agreement is that he can still choose to walk away even if the awaited condition is fulfilled. We explain further in this article.

When to use this agreement

This agreement is likely to be used in situations where the outcome of the event for which the buyer hopes is unknown, like a residential planning application involving negotiations and a gradual approach to a satisfactory outcome (or appeal). It maximises the seller’s opportunity to share the profit without putting the optioner at excessive risk of over-paying.

If the outcome is specific, like an application for a waste disposal licence, then the ultimate value can also be calculated accurately, so the sale price can be specific. In that case the holder would prefer an option to purchase with extensions to the term or maybe one with no frills.

A buyer might use this agreement to give a property seller an additional incentive to act in some way to achieve the higher value outcome, or a seller might use it to ensure he or she shares in the whole profit.

The present or proposed use of the land are not relevant to the agreement, so you can use this document for any real property transaction. You might use it for buying land or buildings with a view to development before:

  • planning permission (or other licence) has been granted

  • finding a tenant

  • negotiating with a local authority for a change in status of a listed part

  • a land or building survey has been completed

  • financing has been secured

This agreement can be used for securing an option on any type of land and/or buildings, and with a view to buying the property for any reason.

These might include:

  • house building

  • redevelopment of light industrial units

  • refurbishment of offices

  • development of an arcade of shops

The document also includes an exercise letter template, which can be used by a buyer before the expiry date stated within the agreement.

Alternative templates

Property options are an area of law in which Net Lawman specialises. You can find our complete range of templates here.

Features

  • Sets out a clear and logical pathway for exercise
  • All variables are clear and in one place
  • Suitable for a variety of land types and situations
  • Includes an exercise letter template
  • User friendly: includes invaluable user notes to guide you through to successful execution

Contents

  • Property and option details
  • The essence of the agreement
  • Calculation of price or additional price or extended option
  • Registering the option and HM Land Registry
  • Buyers warranties
  • Sellers warranties as to the current planning status of the land
  • Confidentiality
  • Indemnities
  • A director’s guarantee, in case the seller is a company
  • Inclusion of any unregistered rights over adjacent land
  • A detailed sale contract incorporating the Law Society’s Commercial Conditions (3rd edition) with amendments tailored to this precise deal
  • A separate notice letter to exercise the option
Draftsman

This document was written by a solicitor for Net Lawman. It complies with current English law.

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