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Options and Conditional Contracts

Developers will often be reluctant to buy land for development if there’s no guarantee that they will be able to develop, or if the land is suitable for development at all.  Doing so could mean that the developer ends up out of pocket and being stuck with a piece of land that they can’t develop.  But on the other hand, developers will want to avoid missing out on the acquisition of a potential profitable development site whilst they wait to find out if they can get planning permission or not.  A solution for developers would be to consider entering into an option agreement or conditional contract.

What is an Option Agreement?

An option agreement is an agreement in which the landowner grants the developer the right, or the ‘option’, to buy the land within a specific period of time.  It will bind the landowner so that they cannot sell the land to anyone else, but gives the developer the freedom and time to assess the viability of the land and whether or not they want to proceed with the purchase.

What are the benefits to an Option Agreement?

An option agreement allows the developer time to get the necessary assurances that they will be able to develop on the land, and that the relevant planning permissions will be granted, whilst having the comfort of knowing that they will not lose the land to another buyer.

There is also no obligation on the developer to follow through on the purchase if it turns out that the land is unsuitable for development.  This gives a developer more flexibility to decide what they want to do and to weigh up their options.  Whether or not the developer choses to proceed to buy the land is at their absolute discretion.

What is a Conditional Contract?

A conditional contract on the other hand is an agreement based on compliance with certain conditions.  The landowner will agree to sell land to a developer provided that certain conditions are met.  One condition will almost certainly be the condition that the developer first obtains satisfactory planning permission for their development.  If obtained, the developer will be bound by the contract to proceed to buy the land, but the transaction will not proceed without it.

What are the benefits to a Conditional Contract?

The benefit to a conditional contract is that the developer will not have to purchase the land unless the conditions are satisfied.  A developer can then enter into a contract to buy land knowing that they will only have to proceed with the purchase once they have got the planning permissions that they need to be able to develop the land.  It’s worth noting though that once the conditions are satisfied under a conditional contract, the developer will be legally bound to complete a purchase and cannot withdraw from the transaction.

Option Agreement or Conditional Contract?

Both have their benefits for a developer in that the developer will only have to proceed with a purchase of land if they a) get confirmation that the desired land is suitable for development and that the planning permissions they need can be obtained OR b) have already secured the planning permission required to develop the land.  Both agreements ensure that the developer will not get stuck with land that they don’t want and that they can’t develop.

If you need any advice on option agreements or conditional contracts, please contact a member of our commercial property law team in confidence here or on 02920 829 100 for a free initial call to see how they can help.

To speak to one of our experts today, please contact us on 02920 829 100 or by using our Contact Us form for a free initial chat to see how we can help.

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