But what are the benefits of an Option Agreement and what happens if each party is unable to agree on the price of the land in question?
Residential property expert and a RICS independent expert dealing with residential development disputes, Gary Jeffries, explores.
An option to purchase land provides a potential buyer (the option holder) with the flexibility to optimise the development potential of the site and secure planning permission before committing to the purchase.
It also gives the landowner a degree of certainty regarding a potential future sale. If the option is not exercised within the agreed time frame, the landowner is then free to sell the land to other parties.
However, more often than not, an Option to Purchase land for the development of housing is not at a fixed price, as the options often last five to 10 years, or even longer. This can be challenging and lead to disputes.
As a member of the RICS panel of Independent Experts dealing with residential development disputes, in my experience, these disputes often tend to be over the price to be paid under an Option. But they can also be for things like overage issues whereby the buyer agrees to pay extra on top of the original purchase price if and when certain events happen.
If the parties to a land disposal can’t reach agreement on the price to be paid, Option Agreements will usually contain a mechanism for the price to be determined – usually based on the market value of the land.
This can be problematic as the assessment of market value is often not straightforward, particularly when there are site-specific factors or constraints to consider.
This can include everything from abnormal development costs caused by site infrastructure, foundation treatment or remediation works, and more.
How do you avoid disputes?
It’s crucial for both parties to clearly define the terms of the Option Agreement to avoid misunderstandings or disputes. Make sure you have clear and comprehensive within it to address potential disputes and ensure a smoother resolution process.
When drafting or entering into such agreements, it important to seek legal advice to ensure they meet the requirements of all parties involved.
Despite this, disputes can still arise.
