What is a land option agreement?
Updated: Oct 11, 2022
In an option agreement, the seller grants the buyer the right to buy their land or property at a pre-agreed price. This is usually triggered by the gaining of planning permission by the buyer on the seller’s land. The option agreement will be time limited.
Does the developer have to purchase the land?
The decision to exercise the option is up to the developer. However, the option will expire if they do not exercise it during the "Option Period" specified in the agreement.
What is an Option Period's duration?
Any duration for an option term is permissible, although the parties' agreement usually depends on the type and scope of the possible development site. An option period typically lasts between 1-3 years for a relatively modest plot of land that is immediately suitable for development. Larger properties, on the other hand, are more often considered "strategic land" and take longer for a developer to realise their full potential. Although the option durations for strategic land might vary, a typical timeframe is between 5-10 years.
If the parties have so agreed in the agreement, the initial option time may be extended under specific conditions (such as if a planning decision is still pending).
How is the option exercised?
When the developer decides to exercise the option to purchase the site, they are typically required to serve an "Option Notice" and pay a deposit.
Why would an option agreement be used by a developer?
The developer will spend a substantial amount of money bringing forward a parcel of land and gaining planning permission. They therefore need certainty that the land will not be sold whilst they are attempting to gain planning permission.
Why would an option agreement be suitable for the landowner?
Gaining Planning Permission may be the best way to maximise the value of land you own. This can be a difficult and expensive process, which is best undertaken by a developer. They will ask for an option to buy the land in return for spending a considerable amount of money, time and effort to gain planning and then pay you the maximum value for the land.
Contact NFC Homes
NFC Homes is a residential and commercial property development group operating throughout the UK. We have expertise in land appraisals and valuations as well as planning, surveying, legal and construction considerations. If you have land you wish to sell, contact NFC Homes and we can help guide you further.