Purchasing land: Option agreements, conditional contracts and pre-emption agreements

When buying and selling land, its ownership essentially passes from one party to another, and while many property transactions are relatively straight-forward, other scenarios including purchasing land to develop it, purchasing a building and making major alterations to it, or changing its use altogether, make matters more complicated.

The key consideration here is that the buyer is in the hands of third parties, such as the local authority planning department, to achieve it aims.

Here, property transaction expert David Buskey explores options for purchasing land, including conditional contracts, pre-emption agreements and option agreements which help mitigate risk by giving the buyer the option to purchase the land at a later date.

Managing risk

When making a purchase, buyers should be concerned about paying full value for a property or land, only to then fail to obtain planning permission and see its intentions thwarted. Buyers may then have no choice but to sell the property to recoup money.

It is too risky for the buyer to go to the expense of obtaining planning consent before trying to purchase the property, unless there is a legally enforceable agreement in place with the seller.

Option agreements

Possibilities for these types of agreements include option agreements, which is a type of contract used when a seller agrees to give a buyer a set period in which to buy a property. Once entered into, the buyer attempts to obtain the planning consents and if successful can then proceed to buy the property.

Advice must be taken as to whether the seller takes a fee in return for granting an option, and when planning consents are involved detailed advice is needed to cover the situation where the option period is running out, but the planning process is still ongoing. An option also still allows the buyer to change their mind.

Even if the buyer obtains what is needed prior to purchase, such as planning consent, the buyer could still decide not to exercise the option after all.

There is a way a seller could avoid this, involving several options that the seller and buyer grant to each other, but specialist advice must be sought here to ensure success.

Conditional contracts

A conditional contract is similar to an option agreement, however with this route a legal obligation arises once the contract is entered into that – provided the conditions are met – the seller and buyer must both follow through with their obligations to buy and sell the property or land.

This therefore offers the seller some comfort that a buyer, if the conditions are satisfied, must proceed and cannot simply change its mind.

Pre-emption agreements

Pre-emption agreements offer a fundamental difference to option and a conditional contract in that this type of agreement only applies should the seller choose to sell the property.

It is often known as a right of first refusal, meaning that if the seller decides to sell within an agreed period, it must give the buyer first chance to agree terms to buy the property. It is worth keeping in mind that if the seller decides not to sell, there is nothing the buyer can do to force it.

All of these methods require thought and specialist advice, given there are pros and cons with each, and different risks apply to both parties. For help on such matters, contact David Buskey on 01706 213356 or by email via [email protected]

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