Despite the current COVID-19 lockdown situation, farmers are still being approached by developers asking for an ‘option’ to buy some of their land subject to obtaining planning permission.
Many farmers and landowners may be in the same situation so I wanted to take the opportunity to lay out the facts.
An option agreement is a contract to purchase land between the landowner and a potential purchaser which is normally a developer.
Put simply, in return for a usually non-refundable sum of money, you will grant the developer a legally binding option to buy your land at a certain date if planning permission is granted.
Options can be attractive as it is often possible to achieve a much higher price for the land than you would if selling at agricultural value. It is important to note that an option is legally binding on you as the landowner. If the developer exercises the option you cannot change your mind about selling. Therefore, the first thing to establish is that you are committed to a sale.
The key points you must consider are:
- Length of the option period. You must balance sufficient time for the developer to apply for and successfully obtain planning against your need for certainty that the deal will proceed swiftly. You do not want the land to be tied up simply for the developer to walk away years down the line.
- The amount of land within the agreement. If the option land forms part of a larger farm then it’s essential it is clearly defined on accurate plans.
- HM Land Registry. Any defects in the title should be addressed early on by your solicitor to prevent any unnecessary delays in getting the option agreement finalised.
- Calculation of purchase price. Unless the purchase price is to be fixed you will need to take advice from your agent as to how this will be calculated to get you the best possible price.
- The planning process. The developer will want as much freedom possible but you will want some form of input. This is particularly important if the purchase price is to be calculated based on the market value of the land with the benefit of planning.
- Professional fees. The agreement must be clear that the developer reimburses you for your agent’s and solicitor’s fees, as well as any other expenses. You need to ensure you are not left out of pocket if the developer chooses not to exercise the option.
- Tax implications. It is essential that the agreement is run past your tax advisors.
So overall, my advice is to tread carefully and seek full advice as early as possible to get the best possible option agreement.