What is an Option Agreement?

An option agreement is an agreement between two parties – the landowner and a potential buyer (the developer). It allows developers the ability to purchase a specific area of land after they’re granted permission for the development. It provides the right, but not the obligation, for a party to purchase, sell or gain an asset at a certain price and at a particular period of time.

Both parties enter into an agreement in return for a non-refundable sum of money. This is then paid to the landowner and in exchange, the buyer is granted first option to buy the asset. This is agreed contractually through an option agreement.

A potential buyer of the asset in question (property or land) has a legally binding option to buy on a specific day, within an agreed time-frame or after the completion of an event.

They contractually can only complete the purchase within the option period. The period could be as long as several years, or can be triggered as a result of an event; such as the planning permission being granted for the development.

 

The benefits of an option agreement for both parties

  • It provides protection for the developer – a developer can safely explore their options for the project without the risk of incurring a huge cost only to lose the property to someone else. You will have a contractual agreement which means you can gain the planning permission without the seller getting frustrated and selling to someone else.
  • Security for the seller – Although it doesn’t guarantee a sale, it does mean that you have some security when it comes to the sale of your property. If the property market was to experience a dip, then you’re assured of an interested buyer for the future. You’ll also receive a non-refundable deposit for the option agreement.

 

Work with an experienced solicitor

Every option agreement will differ depending on the facts and the reason for the agreement. They do each however have similar requirements within an agreement.

 

Some of the typical requirements in a contract include:

  • The duration of the term of the option.
  • The amount of land included in the option.
  • A condition or conditions which allow for the process to be completed.
  • The amount of deposit to be paid by the buyer.
  • Any extension on the duration if applicable.
  • A dispute resolution procedure.

Our specialist team of lawyers are skilled in the preparation of commercial contracts and agreements. They’re experienced in acting for either a developer or the asset owner in an option agreement.

Always seek professional advice before committing

Before committing to any kind of option agreement, we recommend you seek legal advice.

By working with our solicitors, we will be able to review the agreement and ensure your best interests are being met.

 

Please do not hesitate to get in touch whether you have a question or you would like to arrange a call.

 

David Browne Partner Head of the Commercial Property Warminster

David Browne
Partner - Head of the Commercial Property Department

Please Contact
djbrowne@middletonssolicitors.co.uk

01264 333336

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