Is now the time to use Option Agreements?
We’ve all heard the rhetoric of the Covid-19 lockdown being a strange and difficult time, and if you are looking to buy or sell property at first glance it may seem that now might not be the best time to enter into a contract. However, when you look a little deeper, it is a good time to consider an Option Agreement, particularly if you are buying or selling land for development.
As noted in our previous article on Options this form of contract provides a balance of security to both landowners looking to sell and developers who would like an interest in the land prior to outlaying costs in applying for planning. As Covid-19 is impacting on conveyancing transactions some parts of the market are inevitably slowing down at the moment, but many developers are looking forward to their supply of new sites for when lockdown measures are lifted, so by putting an option in place now, it will give the ability for developers and landowners to make the best of the situation in due course.
What is an option agreement?
To re-cap, an option is a contract whereby the developer can opt to purchase land during a set time (the “option period”). The landowner has the benefit of knowing that during the option period they may benefit from the developer exercising the option and paying a premium for developable land, while a developer has the ability to obtain planning, without the risk that they will be compelled to acquire a parcel of land without the benefit of planning.
What are the benefits of an option?
An option agreement also offers flexibility as to timings, which is a key consideration at this time. Frequently options are drafted to allow the developer to exercise their ability to purchase the land at any time during the option period. This allows developers to choose the most appropriate time to exercise the option, permitting them to take account of matters such as the grant of planning, availability of development finance and the ability to start work on site following the completion of the acquisition. Additionally, options have the benefit for landowners of allowing land to be sold at an enhanced development value without having to pay for planning themselves.
Is there anything that I should consider at this time?
Although local authorities are accepting new planning applications during the lockdown, it is possible that the lockdown may have impacts on the usual planning timetable. Therefore landowners and developers should consider more flexible timescales for submission of planning applications and for pre-application matters, including any surveys or reports that will need to be undertaken. In addition, planning appeals have been impacted by lockdown delays, with the Planning Inspectorate having ceased certain elements of their casework (see our recent article for a more in depth review of the delays https://www.herrington-carmichael.com/planning-with-covid-19/), so parties should consider making provision for extensions to the option period in the event of a delayed planning appeal.
This reflects the law at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought as appropriate in relation to a particular matter.
Latest Articles & Legal Insights
As offices begin to reopen, landlords will naturally be considering what their new obligations to their tenants will be…
In response to the Coronavirus outbreak the Ministry of Housing, Communities & Local Government has announced a planning update…
As the lockdown restrictions of the past two months begin to ease many will be wondering when will be able to get back to work and what will that look like.
Discussing life after lockdown, loan to value and the changing face of our high streets…
As with any economic crisis, the property market is one of the first and one of the hardest to be hit…
COVID-19 and the Prime Minister’s imposition of lock down restrictions on 23rd March has had an impact on the housing market …
Top read insights in 2019
Award winning legal advice
We are solicitors in Camberley, Wokingham and London. In 2019, Herrington Carmichael won ‘Property Law Firm of the Year’ at the Thames Valley Business Magazines Property Awards, ‘Best Medium Sized Business’ at the Surrey Heath Business Awards and we were named IR Global’s ‘Member of the Year’. We are ranked as a Leading Firm 2020 by Legal 500 and Alistair McArthur is ranked in Chambers 2020.