OPTION AGREEMENTS - WHAT ARE THEY?
Option agreements are by far the best agreement for securing deals between land owners and developers.
The right option agreement allows us (the developer) the time to successfully go and design a winning scheme and ultimately gain planning permission.
We take on all the risk and cost of the planning procedure and there is no cost to the landowner.
The biggest advantage to land owners is that once planning permission is approved, the value of their land has significantly increased.
The 3 key terms
For many land owners, option agreements frighten them and raise confusion. This is because some option agreements are very complicated with all sorts of clauses and quite frankly confusing points that aren’t worth the paper they are written on.
For me, I like to keep things simple and when you strip it all back, there are 3 key points that determine an option agreement for the sale of land for development.
Deposit / Fee.
The first point is obviously the landowner’s most burning question “how much are you going to pay me for my property?” This will be the price that is stated on the option agreement that the landowner will receive upon gaining successful planning permission.
Working out a realistic price for land is a rare skill of an experienced developer. The price has to work for everyone involved.
There are generally 2 types of developer. One that offers a ridiculously low price for your land in the hope of a lucky break that will never happen or one that gets too excited, doesn’t do the relevant cost calculations and due diligence and over offers on price, which then results in the deal falling out of bed later down the line because it is just not financially viable. Everyone involved gets let down, looses money and the land owner is left in limbo.
Then there is they way we do it at Pure Estates. We thoroughly evaluate every potential site with an attention to detail before we get to the option agreement stage and through clever design and our industry experts we maximize every site to its greatest potential so that the land owner receives the highest price possible on a deal that will actually come to fruition. When we make an offer, it’s a deal that will actually happen.
Once a price has been agreed between ourselves and the land owner, the next part of the option agreement to stipulate is the amount of time the agreement will last.
Land owners tend to think that planning applications should only take a couple of months so tend to want a short option agreement, however the reality is that depending on the scheme, planning permission can be as straight forward as 6 months for a basic application but up to 2 or 3 years for a more complicated and bigger scheme.
Some applications will need lengthy ecological studies, archeological studies or need to go to appeal to name just a few reasons why the planning application stage could take a lot longer.
Every site is unique and there is no one glove fits all approach.
The ideal option agreement would be 18 – 24 months or longer for a site with more advanced planning complications but 12 months would be possible on a smaller site.
Deposit / Fee
The final key term to decide is the deposit / fee. The majority of option agreements are made upon a £1 nominal fee – this is purely to make the agreement legally valid.
The deposit of course is flexible and again is negotiated to meet the needs or requirements of the land owner.
What the land owner needs to understand is that once the option agreement is in place, the developer then takes on all the costs to gain planning permission and is ultimately making the land worth the price stated in the agreement.
At the very worst case, if planning permission was to be refused and the deal came to a halt, the land owner would have put no money in the process but still owns the land so essentially they have not risked anything.
If you have land for sale in the Milton Keynes, Buckinghamshire or Bedfordshire area we can maximise the value of your land and work with you to build a winning scheme. Call us today for a informal chat here