Options to purchase and Conditional Contracts

We have recently been instructed by a number of vendors following approaches by developers looking to secure sites for residential development. Whilst this is clearly a positive sign of increasing confidence in the market, there are a number of factors to consider when acting on behalf of the landowner.

 (1)   Is the transaction to be an option agreement or conditional contract? The latter obviously favours the seller in terms of providing greater certainty; the developer is committed to purchasing the property in the event that planning permission is obtained. An option merely provides the purchaser with the right to exercise that option to buy. It is important to bear in mind that the purchaser will want to drive the matter and seek the ability to walk away if the planning permission granted does not match their plans for the site. Negotiating the contract to ensure flexibility and communication between the parties in the event of a potential planning hurdle can benefit both buyer and seller.

(2)   How long is the option or contract to run for? Following exchange the purchaser will usually place a restriction on the landlowners title; be aware of developers merely seeking to ring-fence sites to prevent and preclude competitors. The longer the period granted, the more time a purchaser has to limit the landowners ability to freely deal with the property. Long stop dates should be agreed from the outset.

(3)   In the event that the buyer does not want to proceed with the planning granted, the seller may wish to proceed with another interested party. Therefore, a clause requiring the assignment of any copyright in plans and drawings for the development and for the removal of the title restriction should be included.

(4)   Consider the concerns of the seller; do they want to restrict development on the property (for example in the event they remain in situ on retained land) or solely want to dispose of the whole of the property? Is the deal exclusively for the whole of the property or will the seller consider a sale of part if the developers plans change? Some clients will require a certain amount of guidance in such deals and its therefore helpful to establish their desired outcome from the transaction along with managing their expectations.

Obviously there will be a whole host of other issues which require careful consideration in such transactions ranging from the calculation of the price to section 106 obligations. If you have any specific enquiries or would like to discuss matters in further detail, please contact one of our commercial team. Alex Walsh awl@bsglaw.co.uk in Preston or Mark Burrowmwb@bsglaw.co.uk in Lancaster.