Landowners and purchasers often get caught up in buying/selling land as quickly as possible, and overlook other possibilities available to them at that point in time, such as taking/granting an option over the land in question.
But what really is the “best option”? As with all transactions, it depends on the circumstances and a summary of each is set out below.
Call Option Agreements – Beneficial for purchasers
Call Option Agreements (“COA”) are widely used and entitle the purchaser to notify the landowner to sell the land during the option period.
To do so, the purchaser needs to serve a written option notice and pay a proportion of the option sum, known as the deposit to the landowner. This creates a binding contract between the parties, based on the terms of the option agreement.
Where the purchaser does not exercise this right within the option period, the landowner has absolute discretion over the sale of the land.
Put Option Agreements – Beneficial for landowners
Put Option Agreements (“POA”) are rare, but entitle the landowner to notify the purchaser to buy the land during the option period.
Cross Option Agreements – Beneficial for both
As the name suggests, there is a crossover between the two options; the purchaser is provided with a call option, and in return, gives the landowner a put option.
As mentioned above, the most suitable option for the parties depends on the specific circumstances. However, call option agreements are the most common, and have many benefits for both parties, as shown in the table below.
Benefits for the purchaser
Benefits for the landowner
Maintains control of the option
Can rely on the purchaser to obtain planning permission
Has a guaranteed right to purchase the property within the option period (the landowner cannot sell it to another party)
Entitled to an option sum for holding the land for the purchaser
As well as selecting the correct type of option agreement, it is just as important that the agreement contains the relevant provisions and is enforceable.
For further information, please contact our commercial property team on 0113 202 9550.