The law says simply that an agreement to buy real property must be: in writing; signed by both parties; dated; and must identify the land being bought. It is this last point that catches people out when they create property option agreements. Too often boundaries, rights of retention and other matters are not defined in sufficient detail. We offer several variants on a option agreement that provide solid frameworks around which you can negotiate your deal.
Property option agreements
This is a comprehensive option agreement to buy real property - land or buildings - in a straight forward, “plain vanilla” deal.
This agreement fixes the price and the exercise date so that there is no scope for argument.
It creates a full contract for sale and purchase subject only to exercise of the option by the buyer.
All variables are clear and in one place within the document.
User friendly text and includes invaluable user notes to guide you through to successful execution.
This is a simple option agreement that creates a right to buy real property at a set price within a certain time period.
This version has been drawn specifically for situations where the buyer does not want to put the seller off the deal by giving him a document full of “legal” matters. Use if you fear that your seller may be overwhelmed. That way, you get a signature on this agreement.
Properly completed, signed and dated, this document is binding, but because this is a cut down version, there is less security for the buyer and there may be additional matters to consider in connection with the minutiae of the conveyancing process.
We include a template notice of exercise letter, to be used by a buyer to exercise the option before the expiry date stated within the agreement.
This option agreement provides 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.
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 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 contract for a property sale. For the option holder, the attraction of this option agreement is that he can still choose to walk away even if the awaited condition is fulfilled.
This contract maximises the seller’s opportunity to share the profit without putting the option holder at excessive risk of over-paying.
Note that 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 option holder would prefer an option to purchase with extensions to the term or maybe a no frills comprehensive option like the next one below on this page.
An option buyer might use this document 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 and not just the first stage.
The present or proposed use of the land is not relevant to the agreement, so you can use this document for any real property transaction.
The document also includes an exercise letter template, which can be used by a buyer to exercise the option before the expiry date stated within the agreement.
Example uses of this agreement: for buying land or buildings with a view to development after:
- 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 allows the option holder to exercise the option in stages so that he does not have to put out the entire exercise price in a single payment. He or she pays a fixed exercise price
Phases can be agreed in advance or calculated by reference to a proportionate part of the whole site.
Use this agreement on any occasion when you need to await some event. It could be simply planning approval, or it could be resolution of a dispute, grant of a licence relevant to this land, or simply an offer of financing.
The document includes protection for the buyer to prevent the option holder from controlling parts of the site which he has not yet bought.
It is suitable for buying any type of real estate, from agricultural land to derelict warehouses.
- the buyer will apply for consent on a large area of land, only in stages because the local planning authority is unlikely to allow development of the whole land area
- the buyer cannot fund the entire purchase before he has some cash flow from the first phase
- the buyer believes that planning consent on later phases may not be forthcoming for some reason outside his control
This is a basic option agreement with the addition of one provision: it can be extended by the option holder subject to two things.
The first is an additional payment to the land owner, and the second is some other condition that you specify.
Use this agreement when there is some outstanding event which is a “deal breaker” for the option holder, for example, a decision to install a new sewerage disposal plant or to divert a road. Using this agreement, the option holder can extend the option period to make sure the condition is satisfied before he has to buy the land.
This is a conditional contract for land or property - once signed, the entire deal is under contract and both sides are bound subject only to one or more conditions being met.
The most usual conditions are:
- obtaining a grant of planning permission
- the removal of a restrictive covenant on use
- grant of access rights
- vacant possession of a building being obtained from an occupier
- grant of permission or licence for a particular use
The document includes an option for the seller to receive an additional payment in the future. This top-up provision gives a seller a stronger incentive to sell because he will have a second bite of the cherry if and when the buyer is able to generate more value later. For example, if the buyer cannot obtain planning permission for the whole site and instead seeks planning permission in stages, the seller can benefit from the increase in value of the land as a result of the subsequent grants of permission.
The document also includes an option to include a guarantor if the buyer is a company.
Example uses of this document
- for the redevelopment of an office building conditional on a tenant being found first
- for the sale of a field to have houses built provided planning permission is granted
- for a warehouse to be converted into a nightclub conditional on local authority permission
This option agreement builds on our standard agreement by providing for the option holder to extend the term of the option for a fixed length of time at a later date in return for an additional payment to the seller.
This template mitigates against the risk that the future event that is expected to increase the value of the property doesn’t occur as quickly as originally envisaged. It is therefore useful in situations where timing is uncertain.
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