An option agreement gives a potential buyer a right to purchase the land, provided they give notice to the landowner during an agreed period (the option period), usually in return for a sum of money (the option fee). If the notice is given by the buyer during the option period, the landowner has to sell the land to the buyer on the terms of the option.
What are the benefits of an option agreement?
By entering into an option agreement, the buyer is able to explore the planning potential of the site without being obligated to complete the purchase should they not be able to obtain the planning permission they require. It is also a helpful way to structure a transaction where the land over which the buyer is looking to obtain planning is owned by several different parties.
Usually, the option is exercised on the basis that planning permission has been granted, which will significantly increase the value of the land without the landowner having to incur the costs of obtaining the planning permission themselves. The price for the option may be fixed, based on a formula, or subject to market value determined by a surveyor.
An unconditional contract for the sale or purchase of land is the simplest form of contract and means that there are no conditions attached to your contract. The buyer will be agreeing to complete the purchase of the land on the completion date specified in the contract and the sale/purchase will not be dependent on any other factors.
While conditional contracts can provide certainty for both parties, it is often unsuitable for a development site unless the site already benefits from satisfactory planning permission and a developer is happy to proceed with the transaction as is and not relying on any further permissions being obtained.
Although an unconditional contract is the simplest form of contract for the sale or purchase of land, with development there are very often additional terms needed in the contract to deal with any copyright, community infrastructure levy, or environmental issues attaching to the site.
Speak to our team today to see if an unconditional contract is right for you.
A common form of contract for the sale/purchase of a development site is a conditional contract. This enables the buyer to agree to buy the property, subject to certain conditions being satisfied e.g. satisfactory planning permission being obtained. Once the conditions have been satisfied within the timescale specified in the contract, the contract becomes unconditional and the buyer must proceed and complete the purchase of the site on the date set out in the contract.
What are the benefits of a Conditional contract?
Firstly for a Developer, it allows a developer to secure the land for a certain period of time to enable them to satisfy the conditions of the contract. In the event that the conditions cannot be satisfied within the timeframe agreed in the contract, the parties are free to walk away. The developer will not have incurred the expense of purchasing land for which it has not been possible to obtain satisfactory permission.
But for a Landowner, it allows the landowner to utilise the expertise of the developer in obtaining satisfactory planning permission (and potentially seek to have a say in the permission granted through the terms of the contract, although this is often limited) in exchange for agreeing to sell the land to the developer if the conditions are satisfied. This is limited to a certain period of time – often known as a long stop date – which is agreed upon between the parties.
A Promotion Agreement is an agreement that is entered into between a ‘promoter’ (often the developer) and a Landowner. It provides that the promoter takes all the necessary steps to apply for planning permission over the Landowner’s development and then once planning permission has been granted it provides for the land to be sold on the open market and the profits of this land sale to be shared between both parties.
What are the benefits of a Promotion Agreement?
It is in the best interests of both parties to maximise the planning potential of the land to increase its market value and through this agreement, the landowner is able to utilise the expertise of the promoter in obtaining satisfactory planning permission. The promoter will also usually covers the costs of the planning application at the outset, which are reimbursed when the land is sold on the open market.
In the event that satisfactory planning permission is not obtained by a certain date, the agreement comes to an end.
If you’ve found the right plot of land with planning potential or have you been approached by a promoter for your land then Attwells are here to guide you on the next steps. Get in touch with our team today.
Development agreements are entered into between a landowner and a developer. Where a landowner and developer collaborate, a common scenario is that a landowner agrees to supply the land and allow the developer to obtain planning and build out the development. The developer will contribute the initial planning and build costs along with their relevant expertise. At the end of the build, the development will be sold and the profits split between the two parties as set out in the agreement.
A development agreement is used to set out the obligations of each party and the relevant timeframes, as well as the level of input each party will have during the process. For example, a developer will often want to minimise the input of the landowner whereas the landowner will usually want as much control as possible to ensure that the development is acceptable to them, especially if they will still own a neighbouring property at the end of the project. The agreement will also set out how the profits are to be divided and provisions for resolving any disagreements should they arise.
In order to protect both parties, it is essential that a development agreement is put in place setting out how the development is to be carried out.
Contact Attwells today to ensure that the right development agreement is drafted and negotiated for you.
Although a development agreement is a form of joint venture agreement, these can take many other forms depending on the nature of the project. Typically, a special purpose vehicle (SPV) will be incorporated for the purposes of owning and/or carrying out the development which may be owned and controlled by either two or more separate companies or individuals who wish to pool resources and limit their personal liability for a particular project.
There are a number of factors that need to be considered when structuring a joint venture project. For example, the joint venture agreement will need to include the following:
- The scope and nature of the project
- The objectives of each party
- The degree of control and input each party is to have
- How the project is to be funded
- Who is to be responsible for the day-to-day management of the project
- What is the agreed duration of the project
- How to resolve disagreements or deadlocks reached under the terms of the joint venture
- If a party wishes to leave the joint venture, how this is to be dealt with
Residential property developers have always sought out large freehold properties where the building may have been physically separated into flats, but legally it exists as just one freehold, providing an opportunity for property developers to legally split the freehold title into flats. Following the split into flats, the property developer will typically sell off the flats, potentially retaining the freehold as a ground rent investment.
This potentially realises greater value on the basis that the total values of the flats may often significantly exceed the value of the property as one freehold.
In more recent years this has become popular in town centres, where empty offices are being purchased and then changed to residential using planning-permitted development rights, providing prior approval has been obtained from the relevant local authority.
Town centre living is now popular and with the price of large office freeholds at a low, landlords wishing to dispose to avoid business rates and the costly energy efficiency changes required the general permitted development rights have created a new market for lease creations.
You must of course initially ensure that you have lawful use from a planning perspective and that any work that needs to be undertaken to physically separate the flats is done in accordance with building regulations. Following this, there are a number of matters to consider from a legal perspective including:
- Setting up a freehold management company to hold the freehold following the lease creation.
- Lease plans will be needed before the leases can be drawn up identifying the extent of the flats and common areas. Attwells can provide you with contacts here.
- Drafting the leases to ensure they are compliant with the lender’s requirements but also preserve as much value as possible for the freeholder.
- Lender requirements concerned with the 6-month ownership rule.
- Raising finance, if required.
- Producing a comprehensive sales pack if a sale is an intended exit
Overage (also known as a claw-back) is quite often an important discussion between a buyer and seller on any purchase or sale of land.
Overage offers a seller potential for future financial gain and protection when selling their land, by ensuring that additional payment to that of the sale price is given to the seller if a specific event occurs within a set period of time, which increases the value of the land sold.
An example of this would be a buyer purchasing the land with the plan of developing the land and obtaining planning permission. At the point of which planning permission for that land has been obtained, the value of the land will increase, and as such a seller will want to benefit from this.
On the other hand, the overage will also offer a buyer the benefit of purchasing the land for a lower purchase price and linking any uplift in price to when an event actually occurs.
If you need assistance with drafting or negotiating an overage agreement, then contact our team today.