Land option agreements and buying land for development – a guide
A option agreement is an agreement between a landowner and a developer and provides a way for landowners to increase the value of their land without having to incur the costs of obtaining planning permission.
This may be speculative or in response to a call for land and sites for development from a local authority.
The agreement is a contract which allows the buyer to serve notice on the owner to sell them the land and/or property at the agreed price but being an option, the developer has the choice about whether to go ahead with the purchase or not. For this they usually pay the landowner a fee to fix the option for a set period of time.
Landowners who are approached by a developer should consider a number of issues before entering into an agreement, such as:
- What is the objective of their involvement, how will it affect their other land holdings/ farm operations and how much money are they looking to realise?
- How much involvement do they want to have with the project and will they need to appoint someone to act on their behalf?
- Can they continue to use the land whilst it is subject to the planning process?
- Will they benefit from the full value of the land from the agreement or could the developer seek to change the planning permission in the future?
- What is the period of the Option for which my land is going to be tied up?
- Is there scope for Overage in the future to catch more intensive development of the site?
There are of course many other legal and financial considerations, so it is recommended landowners take professional advice before entering into any agreement.