Formerly a property industry secret, the number of option agreements has risen dramatically in recent years, and with numerous local authorities having relaxed their planning policies in order to encourage the creation of new homes, an increasing number of property entrepreneurs are seeing this opportunity as a way of making money. 

First Bruce explains how option agreements work and why they are growing in popularity: “An option agreement is a legally binding contract between a potential purchaser and a seller, granting the purchaser the opportunity of acquiring the property from the seller at an agreed price within a certain timeframe. During the option period, the purchaser will undertake to apply for planning permission for their desired development scheme. In essence, it’s a low-cost, low risk method of exploring a site‘s development potential without committing to the purchase.

“Option purchasers have historically been new-build development companies whom once having identified a property with potential for development would approach the seller directly with a view to optioning the site for an agreed period of time. Option contracts typically last 12-18 months and in most instances, where planning permission is granted, will allow the seller to achieve a sale price in excess of the property’s market value and the purchaser to purchase the approved scheme at below market value.”

With property responsible for creating so many millionaires in the UK, it’s no wonder that the market has recently seen a wave of “option opportunists” enter the arena. However, some of these less experienced individuals have now become more involved in forging option agreements with sellers with the sole intention of assigning the agreement to a third party for a considerable premium, once planning permission is granted.