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