Anna Clifford, Senior Associate at Browne Jacobson, gives us the low down on what’s the most suitable agreement to use when acquiring land for development which doesn’t yet have planning permission..
A developer may not want to take the risk of acquiring land or property for development until the site has the benefit of a planning permission. There are two main agreements that a developer can use to tie in the landowner whilst delaying the acquisition of the site until the planning permission is obtained. The first is an Option Agreement and the second a Conditional Contract, but what are the main characteristics and differences between the two.
What is a conditional contract?
A conditional contract is an agreement between two (or more) parties that states that they will purchase land if a certain condition is met. The condition (in this instance receipt of a planning permission) must be met before the contract becomes binding, and the developer is bound to purchase the site.
What is an option agreement?
An option agreement is a contract between two (or more) parties which gives one party the right to purchase or property at a later date. The developer only becomes bound to purchase the land once they serve notice under the Option agreement.
What are the main differences between a conditional contract and an option?
The detail of a transaction comes down to the specific circumstances on each deal and you can get agreements labelled as an option but in reality, they are a conditional contract and vice versa. The table below gives and overview of the main differences between the characteristics of a conditional contract against an option agreement where a developer is making an application for planning permission.
A conditional contract will require a developer to do certain things – here to make a planning application – and then purchase the land once the condition – here planning permission – has been satisfied, an option agreement (although will often obliged a developer to make a planning application) in contrast gives greater control to a developer and allows them to walk away even if planning permission is granted. The specific terms for each deal will be different and this article serves as a starting point to outline the key differences.
If you require further advice or guidance as to which would be best in a specific situation, do get in touch with Anna.
As the Legal Ambassador for Exeter PDF Anna is available to offer advice at the upcoming Exeter events.