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Option Agreements

Land and planning specialist Paul Higgs comments on how they work and how to negotiate them

If you have read my previous two articles here than you'll know that successful property development is all about Land and, specifically, finding the best 'off-market' deals, and then knowing exactly how to create maximum 'planning value'.  

However, even when you know this, you then need to structure transactions in such a way that minimises your risk and ideally the amount of capital needed. Last month

I gave an overview of the main deal structures for purchasing land with development potential and this month I'll explain the ins-and-outs of exactly how to use what is by far the best instrument available to any Trader, Promoter or Developer - Option Agreements.

The attractiveness of option agreements is that they give us the ability to control land or property without the obligation to have to buy it. In effect, they buy us time. That time can be used in any way.

Often this time may be needed to make enquiries before fully committing legally, to reach an agreement with others to join in the transaction (such as when assembling various parcels of land) or to allow time for the option holder to raise the required purchase money. With regards to land with development potential, the most common reason to take an option on land is in order to give us time to secure planning permission before buying.

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