Commercial Property Agreements: Options, Conditional & Overage Agreements Explained

When it comes to buying or selling a commercial property, there are three essential commercial property agreements that buyers and sellers often consider. Each agreement is put in place for a distinct purpose, and it is crucial to determine which one, if any, is suitable for your needs.

In this article, we will explore the concepts of option-to-purchase, conditional agreements, and overage agreements, shedding light on their significance in commercial property transactions.

What are option to purchase agreements?

An option to purchase is a legally binding agreement between the buyer and the seller. There are two primary types of options to purchase which include:

1. Call Option – With a call option, the buyer holds the right to purchase the property within an agreed time frame and at an agreed price, which may be the current market price.
2. Put Option – With a put option, it grants the seller the right to sell the property to the buyer during a specified time frame and at an agreed price, often determined by the current market value. The seller holds control in this scenario.

What is a Conditional Agreement?

A conditional agreement is conditional on a certain event happening in an agreed time frame. There are various conditions which can be set in a conditional agreement, including:

• Gaining Planning permission
• Ensuring vacant possession
• Securing funding
• Obtaining consent from a third party

Such agreements are designed to ensure that certain conditions are met before the transaction can be finalised, providing added security for both parties involved.

What is an Overage agreement?

An overage agreement involves the buyer agreeing to pay the seller an additional sum of money in the future, should the value of the property increase. This arrangement is also known as “clawback” or “uplift” and is commonly used in the sale of land intended for development.

An overage agreement benefits both the buyer and the seller:

• The buyer benefits from a reduced initial purchase price, allowing for greater investment potential.
• The seller gains from the increased market value of the property, capturing the full benefit at a later stage.

There are three main types of overage agreements:

• Planning Overage – This includes an uplift payment when planning permission is obtained, resulting in an increase in the property’s value.
• Sales Overage – This includes the buyer agreeing to pay an additional amount if the development generates revenue exceeding the initial amount.
• Sales at a Profit – This agreement only applies when the buyer sells undeveloped land at a profit.

How can Taylor Bracewell help?

At Taylor Bracewell Solicitors, we have a dedicated Commercial Property Team specialising in commercial property transactions in Doncaster and Sheffield. With our extensive knowledge and experience, we can provide valuable guidance and support throughout the process. Our team understands the intricacies associated with options, conditional agreements, and overage agreements, and we can help you navigate these complexities with confidence.

Our solicitors can review and draft agreements, ensuring they are comprehensive, legally sound, and protect your interests. We can also assist in negotiating terms and conditions, addressing any potential risks or concerns along the way.

For any further guidance or support don’t hesitate to contact our commercial property team of experts in Doncaster & Sheffield. They are always happy to help and answer any further queries you may have. They can be contacted by calling 01302 341414 or 0114 272 1884, alternatively, you can fill out our online enquiry form.