Commercial finance and development
Option agreement
Legal work for an option to buy land, covering the option fee, option period, longstop date, price and the planning conditions for exercise.
This work depends on the details, so our team prepares a quote for you, usually within one working day.
An option can tie up land for many years. Both sides should diarise the key dates and check that the planning and price provisions will still work if the market or planning policy changes.
An option agreement gives a buyer, usually a developer or land promoter, the right but not the obligation to buy land within a set period, typically once planning permission has been obtained. The landowner receives an option fee and must sell if the option is exercised, while the buyer can walk away if planning fails.
Landowners granting options use this service, as do developers and investors taking them. The agreement has to balance two sets of interests over what may be many years: the buyer's need for time and control while it pursues planning, and the landowner's need for a fair price, a clear end date and protection from the land being tied up indefinitely.
Options are bespoke documents, so they are quoted individually. Tell us in your quote request whether you are the landowner or the buyer, and our team will usually reply within one working day.
What is involved
An option usually comes together in these stages:
- Heads of terms: reviewing the option fee, the option period and any extensions, the price mechanism and the planning obligations, and spotting anything missing.
- Due diligence: for the buyer, checking the title, access, services and any existing overage or covenants; for the landowner, checking the buyer's financial standing and any guarantor.
- The price: drafting how it is set, often market value with the planning permission less an agreed discount and allowable costs, usually with a minimum price, and how disputes over value are referred to an independent expert.
- Planning obligations: who applies for planning, at whose cost, how far the landowner must cooperate and what counts as a satisfactory permission.
- Exercise and longstop: how the option is exercised by notice, the deadline for doing so and the longstop date, after which the option ends regardless.
- Restrictions on the landowner: preventing sales, new leases or new rights over the land while the option runs, and dealing with existing farm tenancies or other occupiers.
- Protection: registering a notice of the option on the title at HM Land Registry so that it binds any future owner.
- Completion: paying the option fee, dealing with any SDLT on it and diarising the key dates.
What the legal fee covers
- Checking the proposed fee, option period and price terms
- Investigating the title and access to the option land
- Drafting or negotiating the option agreement
- Agreeing the price mechanism, minimum price and valuation process
- Negotiating the planning obligations and what counts as a satisfactory permission
- Registering a notice of the option at HM Land Registry
- Paying the option fee and any tax return it needs
- A summary of the key dates and obligations
Costs you may see on top
- Any SDLT or LTT due on the option fee itself
- VAT on the option fee, if the land has been opted to tax
- The landowner's legal costs, which buyers often agree to pay
- Valuation advice on the price and the minimum price
- Planning consultant and application fees, usually met by the buyer
- The cost of noting the option on the landowner's title
- Tax advice for the landowner on capital gains and other taxes
What to have ready
- A plan of the land the option will cover
- The heads of terms or proposal from the developer or promoter
- Title deeds or title numbers for the land
- Anyone who farms, grazes or otherwise uses the land, and on what terms
- Any planning history, or the site's status in the local plan
- Details of every landowner and anyone else with an interest in the land
- Your accountant's or tax adviser's details
How long it takes
Negotiating and completing an option agreement commonly takes 6 to 12 weeks, and longer where there are several landowners, agricultural tenancies or a complex price mechanism. The option itself then runs for its agreed period, often several years, while planning is pursued.
Agreeing detailed heads of terms, including how the price is calculated and the longstop date, shortens the negotiation considerably. Having valuation and tax advice in place before drafting starts also helps.
Things to watch for
- Landowners: insist on a minimum price and a firm longstop date. Without them, the land can be tied up for years with no certainty of a sale or a fair payment.
- Buyers: register the option at HM Land Registry straight after completion. An option that is not protected on the register may not bind someone who buys the land from the current owner.
- Define a satisfactory planning permission carefully, including acceptable conditions, Section 106 obligations and the end of the period for a legal challenge. Disputes about whether the trigger has been met are common.
- Check how the option fits with existing tenancies and rights. Farm tenancies, grazing licences or easements may need to be ended or varied before the land can be sold with vacant possession.
- Get tax advice early. The option fee and the eventual sale can both have capital gains, VAT and SDLT consequences, and the structure can make a real difference.
Questions people ask
What is an option fee?
It is the payment the buyer makes to the landowner for the right to buy the land during the option period. It is often modest compared with the land's value and may be deducted from the price if the option is exercised. Some options include further payments if the period is extended. For SDLT, the option is treated as a transaction in its own right, usually linked with the eventual purchase.
What is a longstop date?
It is the last date by which the buyer can exercise the option, after which the option ends automatically. Options often allow extensions, for example while a planning appeal is decided, so the longstop date sets an outer limit. Landowners want it as early as is realistic, while buyers want enough time to get through planning.
How is an option different from a promotion agreement?
Under an option, the buyer has the right to buy the land itself, usually at a discount to market value. Under a promotion agreement, a promoter pursues planning at its own cost and the land is then sold on the open market, with the promoter taking an agreed share of the proceeds. Some landowners prefer promotion because the price is tested on the open market, but the terms vary and both need careful negotiation.
Can I sell my land while it is under option?
Usually only subject to the option. The agreement normally restricts sales and other dealings, and because the option is registered, a buyer would take the land subject to it. Some options allow sales of small parts or transfers within the family. If you might want to sell, raise it while the terms are being negotiated.
Who does the work
Your matter is handled by a law firm regulated by the Solicitors Regulation Authority, the Council for Licensed Conveyancers or CILEx Regulation, or in Northern Ireland by a solicitor regulated by the Law Society of Northern Ireland. At the moment the law firms on our panel act for property in England and Wales, so for property in Northern Ireland we tell you whether a firm can act for you before we pass your details to anyone. The firm confirms who will work on your file, their experience and its terms before you instruct it. How we choose our firms.