Option agreements explained for landowners

An option is a right to buy, not an obligation. You grant it for a period, typically three to five years, in return for a payment that can be as small as a nominal sum or as large as a few per cent of the land's value today. During the period the developer applies for planning permission at their own cost. If it is granted they may exercise the option and buy at the agreed price.

How the price is set

Rarely as a fixed figure. Usually as a formula: the open market value of the land with the planning permission actually granted, less the developer's planning costs, less a percentage discount that pays the developer for the risk they carried. Discounts of ten to twenty per cent are common. The value is fixed by an independent valuer if the two sides cannot agree. The agreement should say how that valuer is chosen.

What to check

• The period. How long, whether it extends automatically while an appeal runs and whether you can end it if nothing has happened by a date.
• The deductions. Which costs come off before the price is struck. Planning costs yes; the developer's overhead, no.
• The minimum price. A floor below which you are not obliged to sell, so a poor permission cannot force a poor price.
• Overage. A share of any extra value if the permission is improved after the sale.
• Your costs. The developer should pay your solicitor's fees to a stated cap. Ours does.
• What you can still do. Farming, grazing and letting carry on. Selling to someone else does not.

How we use options

Where the land fits a buyer we already hold, an option lets us win the planning and complete the sale to that buyer in one movement. The buyer's requirement is the reason the option exists, which is why we name the kind of buyer before you sign. Option and promotion agreements side by side.