Q: “I want to acquire land and develop it, but I don’t want to incur costs in applying for planning permission before I own the land, and I also don’t want to risk purchasing the land and the planning application turns out to be unsuccessful. How can I proceed?”
A: The option agreement is a valuable tool for businesses and individuals looking to secure potential development opportunities while mitigating risk. One of the most common variations of an option agreement is one that is subject to planning permission. This type of agreement usually provides the buyer with the right, but not the obligation, to purchase a property, often at a predetermined price, safe in the knowledge that planning permission for their required use/development is in place before fully committing to the purchase.
What is an Option Agreement?
An option agreement is a contract that grants one party (usually the buyer) the exclusive right to purchase a property from another party (usually the seller) within a specified period. The buyer typically pays an upfront fee (known as an “option fee”) as consideration for this right. While the agreement gives the buyer flexibility and time to decide whether to proceed with the purchase, it also allows the seller to secure a commitment from the buyer to purchase the property.
What Does ‘Subject to Planning Permission’ Mean?
When an option agreement is subject to planning permission, the buyer has the choice/option to decide whether or not they wish to proceed to purchase the property and that decision will likely, although not exclusively, depend on whether or not their desired planning permission will be granted.
Key Considerations When Entering into an Option Agreement;
- The Option Fee: The option fee is usually non-refundable, so it’s important to assess the value of the property and the likelihood of obtaining planning permission before agreeing to the terms. The fee should be negotiated carefully to avoid paying an excessive amount for the option but it should also be at a level considered to be reasonable compensation for the seller’s commitment to the transaction, which will prevent them for entering into any negotiations with another interested party for the duration of the option period.
- Planning Permission Timeframe: The buyer should ensure that the timeframe for obtaining planning permission is realistic. Some planning applications can take several months or even years to process, and delays may affect the buyer’s ability to exercise the option within the agreed period.
- Drafting: The agreement should clearly outline the conditions under which planning permission can be obtained and what steps should be taken if the application is successful or unsuccessful. It should also include the obligations on each party during the application process.
- Renegotiation Clauses: Consider including renegotiation clauses in case the planning permission is granted with conditions that significantly alter the potential development plan.
- Legal Advice: Seeking legal advice is crucial. An experienced solicitor can help you understand the terms of the agreement and negotiate on your behalf.
A Flexible and Strategic Way
Entering into an option agreement provides a flexible and strategic way for buyers to secure a property while protecting themselves from the risks associated with uncertain planning outcomes. Whether you’re a property developer, business owner or investor, it offers an opportunity to secure the property you need for future development without committing to a full purchase upfront.
Our team at Oliver & Co can assist you with drafting, reviewing, and negotiating option agreements to ensure your interests are well-protected. If you’re considering entering into an option agreement, get in touch to discuss how we can support you through the process.
