An Option Agreement is used when a potential buyer of a particular piece of land/property wants to ensure that it is not sold whilst they are trying to obtain planning permission.
Both parties, the owner and potential buyer, enter into an agreement, in return for a non-refundable sum of money, (this can be negotiated at the time of drawing up the agreement, as to whether the non-refundable deposit can be taken off the final purchase price). The option will then be available for a certain time period.
Types of Option Agreements
- Call Option – this is where the buyer has the right, but not an obligation, to buy the land/property from the seller.
- Put Option – where the seller has the right, but also not an obligation, to sell the property/land to the buyer.
- Cross Option – the buyer receives a Call Option and the seller gains a Put Option in return.
- Reverse Option – Occasionally, these are used to secure an overage payment. The seller receives an option to purchase the property/land back after the ‘trigger event’ occurs, if the overage payment is not forthcoming. The re-sale price will reflect the increase in value of the land/property as a result of the ‘trigger event’
When selling an area of land/property there is a way that you can gain financially in the future if the land/property receives planning permission and in turn it goes up in value.
The Overage Agreement specifies that as part of the sale, the original owner is entitled to a part of any future financial increase in the value of the land/property.
For the agreement to be effective, the correct legal framework will need to be put in place, to ensure that the party making the arrangement is protected. This will need to be firmly in place at the time of the sale, in order to make it legally binding.
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At MW Solicitors, our Mission is "To make quality legal services accessible to everyone" including our clients wishing to purchase commercial property. We pride ourselves on being able to offer an efficient, high quality cost effective service.
If you are considering purchasing a commercial property or think you may need to enter into an option or overage agreement, call our specialist Commercial Property Lawyers today on 020 3551 8500 or use our Contact Us form to arrange a callback.