2013-09-23   facebooktwitterrss
What’s An Option Agreement?

“Increasingly we are being met by landowners, document in hand, asking, ‘should I sign this?’ They are the lucky ones; they bothered to take advice.” says Julie Liddle, Director of H&H Land and Property, one of the leading independent firms of Chartered Surveyors in the North of England.

Here Julie Liddle gives some detailed information about Option Agreements and advice to landowners who may be approached.

Julie Liddel

Julie Liddle

The purpose of an Option Agreement is to give a developer exclusive rights to try and gain planning permission for development with the view to buying the land should planning permission be achieved.

The advantage for the prospective developer is that they can undertake the time consuming and expensive work of obtaining planning permission with the certainty that if they are successful they can purchase the site.

The advantage to the landowner signing up to an option agreement is that they avoid the need to seek permission themselves, and should receive a fair price for the land, if the developer is successful.

It is a long established method of securing a period of time whilst planning permission is sought. The types of development which use these complex and technical form of agreement are mostly residential housing, mixed use office/retail, and wind turbines.

Sadly, as always, the devil is in the detail. Many landowners tend to judge the value of their land by reference to what they know, namely agriculture. So when a developer comes along offering significantly higher values they often jump at the perceived opportunity. However, had they taken advice as to whether in the commercial world the offer was a good one, they may not have signed quite so readily.

As Chartered Surveyors here at H&H Land and Property we have undertaken many, many such negotiations. At all times our aim it so get sound and improved deals for clients, advising whether a deal is likely to happen, or indeed, considering if it’s some sort of ruse to tie up land whilst others nearby are developed.

So, what are some of the questions you need to know? Julie answers the three which are most frequently asked:

1. How long is the agreement?
You will be tied in to the Agreement/developer and cannot speak to anyone else who may come along in future with a better offer. Is this the right person for you? The length of agreement will depend on how long it takes to obtain planning and this will vary depending on many factors.

2. How much will this cost me?
Your fees can be significant for this type of work. We normally suggest professional fees are negotiated into the overall arrangement so it is the developer paying your costs.

3. What is my share of the uplift in value when planning permission is received?
This is major point for negotiation and one relatively glossed over by some developers. Option Agreements have many varied and complex clauses and take considerable time to negotiate. This is not a case of one size fits all.

If you are lucky enough to be in a location, which is suitable for an Option Agreement and where you are approached by a developer, do not take any risks because this may be your one, and only, opportunity to maximise the value of your land. So minimise the risk and take good, experienced and professional advice.

H&H Land and Property negotiate many of these Agreements every year, so if you are approached, Julie is happy for you to give her a call for an initial confidential discussion as to the best way forward.

HH Land

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