Option Agreements
An option agreement is an exclusive, legally-binding contract between a buyer and a seller (or a tenant and a landlord), dealing with how a parcel of land or property can be purchased or leased by one party from another, for a certain price and within a certain time period. The agreement will also record any bespoke requirements that either party has to fulfil, to make sure that the other is able to satisfy its obligations in respect of the agreement.
Option Agreements
A client may wish to purchase a property or accept a lease, but is not quite ready to legally commit to the transaction. There might be background work needed, such as sourcing a facility or loan agreement to fund the transaction, or seeking planning permission for construction or change of use.
The purchaser or tenant will want to secure a legally-binding option, which acts as a period of exclusivity in exchange for a payment of money – known as an option fee. The option will allow the purchaser or tenant to complete the transaction within a certain window of time, known as the option period. During the option period, the seller or landlord is not permitted to deal with anyone else in respect of the land.
What Are the Advantages?
The advantage for a purchaser or tenant is exclusivity. Money can be spent on items such as arrangement or survey fees with a lender, or with a local authority in respect of planning applications and supporting documents. This gives a party an element of assurance that they have a legal right to purchase or lease the land and can therefore spend money on the background matters with comfort, knowing it is not wasted.
The advantage for a seller or landlord is that usually, any option fee paid will be non-refundable. Whilst an option fee will usually be deductible from the final sale price or rent, it is an early payment towards to objective of the transaction, which the seller or landlord gets to keep if the transaction does not proceed within the option period.
How We Can Help With Your Option Agreement
Our involvement will be to ensure that the headline terms of the transaction are accurately recorded within the option agreement and that our clients clearly understand the mechanism behind the exercise of an option and what is required from the performance of the promises made.
Parties must understand what is being paid in respect of any option fee, when this must be paid and how it is treated in respect of the final price. We will advise on the length of time which an option applies for and if there are any circumstances where this can be extended.
We will explain the requirements of an option notice and what is needed to constitute valid exercise of the option. We will also advise upon what happens if the option is not exercised within the agreed option period.
Who We Can Help
We can assist purchasers, tenants, sellers and landlords, irrespective of whether they are private individuals, limited companies, partnerships, larger commercial or charitable organisations.
It does not matter if the option is being granted or taken – we can offer clear, focused advice in both scenarios to our clients, irrespective of client type.
