Option Agreements. Certainty in 2017 for Landowners, Developers and Self Builders

Even though 2017 is likely to be a year of economic uncertainty, option agreements can mean there will still be opportunities to build and develop.

Buying or selling land?

Those wanting to buy or sell land for development can mitigate their exposure to risk, despite an uncertain economic climate ahead.

We know that there has been a substantial shortfall in the building of new homes for several years. The ‘2011-2031 Local Plan’, adopted in April 2014, identified areas for potential development. Provisions were made for more that 4,200 new dwellings for March along, and 11,000 for the entire district.

Option agreements can benefit both buyers and sellers of land to be developed.

Option Agreements – The Core Points

Option agreements are agreements between a landowner and a potential buyer to purchase land. The parties decide in advance:

1. the timeframe for the option to buy
2. a pre-arranged price for the land
3. any conditions to be met before the purchase, such as planning permission or availability of investment funds

An agreed sum is paid to the landowner in return for this ‘right to buy in the future.’

The three most common varieties of ‘Option Agreements’ are:

Call Option– the buyer has the right to buy the land, but is not legally required to do so.

Put Option – the seller can make the buyer buy the land, but can also decide to sell the land to someone else, or keep the land.

Cross Option – both the buyer and the seller can require the other to complete the sale of the land, once agreed conditions have been met.

Options as a tool to mitigate risk for all parties

The main function of an ‘Option’ is to reduce risk to both buyer and seller. When other factors in the economy are subject to change and challenge, ‘Options’ can provide certainty and security for all. The housing shortage will not disappear, neither will the need to continue to buy land and build homes in March.

Benefits of Options Agreements

Developers are more likely to be attracted to spend money on the planning process and purchase of land when a landowner has committed to the process through an ‘Option.’

An ‘Option’ can fix the price or pricing mechanisms for the land so each party can budget accordingly. Prices may be fixed at the time of the ‘Option’, or be linked to market value. Either way, this method provides protection from last minute attempts to be bullied into a reduced or inflated sale price.

One of the main advantages of an ‘Option Agreement’ is that it affords you time. The time required to secure planning permission, finance, or deal with issues such as rights of way, or unhappy neighbours. By having an ‘Option’ in place, the developer has a legal basis for negotiating issues with planning authorities and other regulatory bodies. Time and money will be spent with the secure knowledge, that once any ‘Option’ conditions have been fulfilled, the land can be bought for the price stated in the ‘Option Agreement.’

Consortiums

With the demand for housing increasingly being met by larger developments instead of infill, neighbouring landowners can group together to offer an ‘Option’ to developers seeking larger areas of land. Landowners work together towards a common goal of development, and developers will negotiate with a united group rather than individuals.

Move into 2017 with Confidence

‘Option Agreements’ are the perfect tool for reducing uncertainty and managing risks at times of change. Well prepared ‘Options’ enable both landowners and developers to continue using land to generate wealth, provide much-needed housing and employment for March.

If you would like further advice on this area of law, please contact Silke Trevor on 01945 468727 or email silketrevor@fraserdawbarns.com

This article was published in the January 2017 issue of Discovering March magazine which can be read here.