An option agreement refers to an agreement which is typically between a developer and a landowner. The agreement grants the developer the option to purchase land within a specified time frame or following satisfaction of conditions at an agreed price or via an agreed mechanism, though there is no obligation for the developer to exercise the option
Such agreements enable developers to secure property or land whilst they assess the planning potential of the land, they are also useful for large scale developers to create a development pipeline. The agreement can also provide benefits for the land owner, such as receiving an option fee as well as the premium on the agreed purchase price with the potential of having some input into the development of the land
At Ashtons Legal, we have vast experience working with land owners, promoters, Housing Associations and developers in respect of option agreements. We can offer assistance in various ways, including:
- Legal advice and drafting option agreements
- Preparation of Heads of Terms
- Compliance with regulatory and legal requirements
- Tailored guidance for complex transactions
Contact our expert residential development property solicitors
If you require legal support with option agreements, please do not hesitate to get in touch with our residential development solicitors at Ashtons Legal.
You can contact your local office in Bury St Edmunds, Cambridge, Ipswich, Leeds and Norwich. If you prefer, you can fill in our short enquiry form, and a member of our team will be in touch.
Our option agreement service
Legal advice and drafting option agreements
Options agreements are vital tools for companies and individuals to secure future rights to acquire . At Ashtons Legal, our residential development solicitors are experienced in advising on and drafting comprehensive options agreements tailored to your needs.
We provide expert support to clients entering into options agreements, ensuring every term is clear and enforceable. Our team will help you avoid potential pitfalls and safeguard your interests, whether you’re the party granting or exercising the option.
There are various types of option agreements that may be suitable, depending on the needs of the involved parties. We can assist clients with many types of property option agreements, including:
Purchase option agreements
Providing a prospective buyer with the exclusive right to purchase a property within a defined period (non-conditional), or following satisfaction of a condition (ie acquiring adjoining land, release or variation of title rights, obtaining planning permission) (conditional), typically used in strategic land acquisitions.
Lease option agreements
Allowing a tenant to lease a property with the right, but not the obligation, to purchase it at a later date. These agreements are commonly used in commercial leasing, property investment, and redevelopment projects.
Phased option agreements
Allowing buyers to acquire land in stages, often seen in large-scale commercial or mixed-use developments where acquisition and development occur over time.
For more information, please get in touch with our specialists at Ashtons Legal.
Preparation of heads of terms
Negotiating the terms of an options agreement can be complex. Our solicitors have extensive experience representing clients in negotiations to secure favourable terms that reflect their objectives.
We always recommend putting a well-drafted set of heads of terms in place early on. Doing so helps to highlight any issues from the outset and ensures that both parties are on the same page before progressing to the final agreement. By instructing Ashtons Legal at an early stage, we can help you move forward with greater clarity and confidence.
Compliance with regulatory and legal requirements
Our expert solicitors ensure that your options agreements comply with all relevant legal and regulatory requirements. This includes reviewing and advising on planning permissions, land registry requirements, and any other compliance matters related to the agreement.
We understand that changes in law can impact options agreements, and we’re here to provide ongoing support and advice to keep your agreements up-to-date and legally sound.
Tailored guidance for complex transactions
Some options agreements involve complex transactions and structures, such as agreements tied to joint ventures, promotion and option agreements, phased options agreements, or where options are linked to overage agreements.
Our team at Ashtons Legal can help you navigate these complexities by providing tailored legal advice. We’ll guide you through the intricacies of structuring agreements, ensuring that your interests are safeguarded, and you feel confident to proceed.
To discuss your needs today, please get in touch with our specialist commercial property (residential development) lawyers at Ashtons Legal.
Frequently asked questions about option agreements
What is an option agreement?
An option agreement, also known as a purchase option agreement, is a legally binding contract between a landowner and a developer (or buyer). The agreement grants the developer the exclusive right, but not the obligation, to purchase the land within a specified period and at an agreed price or valuation method.
These agreements are commonly used in commercial property transactions, particularly in land development and strategic land acquisitions.
What is the purpose of the option agreement?
The primary purpose of an option agreement is to give the developer time to secure planning permission, resolve any title issues, assess viability and generally conduct due diligence before committing to the purchase.
It protects the developer from competition while allowing the landowner to potentially benefit from an increased land value once planning consent is obtained.
How do option agreements work?
A property option agreement sets out the conditions under which the developer can exercise the option to purchase the land, including a defined option period and agreed purchase terms. The developer typically pays an option fee for securing these rights and these rights would be protected on the landowners title to the property
If the developer exercises the option within the timeframe, the landowner is obligated to sell under the agreed terms. If the option expires unused, the landowner retains full ownership without any obligation to sell.
What should an option agreement include?
An option agreement should clearly outline the option period, the option fee (if any), the purchase price or valuation mechanism and conditions for exercising the option. It should cover the obligations of both parties, and any required planning or due diligence processes.
It should also include clauses on exclusivity, restrictions on land use, and provisions for dispute resolution. Option agreements require technical consideration as they need to ensure that all eventualities have been considered and are provided for.
What are the risks for the landowner in an option agreement?
A key risk for the landowner is being tied into the agreement for an extended period without any certainty that the developer will proceed with the purchase. Additionally, if the market value of the land increases significantly, the pre-agreed purchase terms may no longer reflect its true worth.
Landowners should also be cautious of restrictive terms that could limit their ability to negotiate with other potential buyers and should always insist on an ultimate long stop date at which point the property is no longer encumbered.
How to register an option agreement at the Land Registry?
An option agreement should be registered as a notice or restriction on the title at the Land Registry to protect the developer’s interest and prevent the landowner from selling or placing any legal burden on the property without acknowledging the agreement.
Whilst the option agreement is likely to contain the wording of the restriction which is to be added to the landowner’s title to the property following exchange, it is standard practice for the agreement itself not to be sent to the Land Registry due to its confidential nature.
Who benefits from an option agreement?
Both parties can benefit from an option agreement The developer gains security and exclusivity over the land while minimising financial risk before committing to purchase. The landowner, in turn, may receive an option fee and the potential for a higher sale price if planning permission is obtained, increasing the land’s value. However, the benefits depend on the terms negotiated within the agreement.
Can an option agreement include obligations for the developer?
Yes, an option agreement can include obligations for the developer, such as a requirement to apply for planning permission within a specified timeframe, cover associated costs, or maintain the land during the option period. These conditions help protect the landowner’s interests and ensure that the agreement leads to meaningful progress toward a potential sale.
Are option agreements legally binding?
Yes, option agreements are legally binding once both parties sign the contract, provided all legal requirements are met. However, the developer is not obligated to complete the purchase unless they exercise the option within the agreed period. The landowner, on the other hand, is bound to sell if the developer chooses to proceed under the agreed terms.
Contact our expert residential development property solicitors
If you require legal support with option agreements, please do not hesitate to get in touch with our residential development solicitors at Ashtons Legal.
You can contact your local office in Bury St Edmunds, Cambridge, Ipswich, Leeds and Norwich. If you prefer, you can fill in our short enquiry form, and a member of our team will be in touch.