Options, Conditional Agreements and Overage

The Commercial Property Team has the expertise and experience to deal with complex property transactions.

Options to Purchase 

These are sometimes known as a Put and Call Option or a Pre-emption Agreement. These are complex agreements which either give the Buyer a right to buy (but not an obligation to do so) during a specified period or after a particular event occurs such as the grant of planning permission for development (a Put Option) or where the Buyer is given a right of first refusal to purchase land when and if the Seller decides to sell (a Call Option).

So in a Put Option, which is your standard option to purchase, the Buyer is in control and can decide when and if they wish to buy during the option period, whilst in a call option the Seller is in control.

Some of the issues arising are:

• Is a deposit payable and is this non-refundable?
• Is the option conditional on planning permission for development and if so is there to be an obligation to obtain this?
• Is the buyer putting in place options with a number of owners who each own a part of a development site?  This is a way of minimising risk to a buyer so the options will only be exercised once a buyer has an option with each owner and can, therefore, secure the whole site.
• What is the price payable? Is this to be determined now or to be determined following planning permission being granted, if so is there a mechanism in the Option for valuation of the property.

Conditional Agreements

These are often used instead of options. This Agreement to purchase a property is made conditional on certain events happening, such as planning being granted for development or the property being shown to be free of contamination. Again, like options, some of the same issues will arise and these need to be dealt with in a carefully drafted Agreement:

• What are the conditions and what will each party do to satisfy these and who is to pay for the cost of doing this?
• Is a deposit to be paid, is this non-refundable?
• What is to be the longstop date for bringing the Agreement to an end?
• What if planning is granted but is subject to adverse conditions?
• Is the purchase price to be agreed now or to be determined following the grant of planning? If the latter is there a mechanism in the Agreement for valuation of the property?
• What will happen in the event of a dispute?

Overage

This allows the buyer to realise the full potential value of the land which they are selling, where there may be future development potential. So the land is sold now for the current market value, but if planning is granted during the overage period, then the Seller is entitled to a further sum of money following this.

Possible issues arising:

• The length of the overage period
• The trigger event – what will trigger the overage and is this to be a one-off trigger event or will the overage still be applicable on subsequent trigger events.
• When is the overage to be payable – after the grant of planning or after the subsequent disposal of the property with the benefit of planning?
• The valuation of the overage – is the cost of obtaining planning to be taken into account?
• Will the overage bind successors in the title – how does the seller make sure this happens?
• How will the overage be protected?

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