Option Agreements

Property boundaries and

The developer will review very carefully the boundaries of your property, especially where they front onto a public highway. The developer will want absolute certainty that the public highway and your boundary touch where there are existing access-ways and that there is no area of land in between. It will also be keen that this is also the case along the length of any boundary that adjoins the public highway so that there is the possibility of creating new accesses onto the public highway without being ransomed by a third party.

The developer will want as much certainty as possible about your title. If your title is currently unregistered, consideration should be given to voluntarily registering it. This will also provide better protection against adverse possession claims, typically with regard to boundaries.

Location and surrounding land

You should consider whether development of your land might enable development of adjoining land and in particular whether such development would best be achieved by access through your land and/or connecting into the service media that will be laid beneath your land. If there is a possibility of this then you should consider keeping out of any option agreement a strip of land along any appropriate boundaries (a ransom strip) so that you can charge to grant rights over that land for the adjoining land to connect into the estate roadway or estate service media.

Prepare for NIMBY (not in my back yard) arguments

There are four “knee jerk” grounds put forward to try to defeat development of land:

1. rights of light enjoyed by adjoining buildings will be prejudiced 2. the land has become a town or village green through being used for recreational purposes by members of the public 3. public rights of way have been acquired through long user by the public 4. private rights of way have been acquired by adjoining land owners through long user

These potential arguments can be addressed by taking the following action:

1. securing all the boundaries so that access can only be achieved through the use of force (ie breaking down fences or gates) 2. erecting notices to the effect that the land is private land and that there are no public rights of access or rights of way over the land. Appropriate signage can be purchased cheaply. 3. filing a Landowner Statement with the County Council. This records that the landowner has no intention to dedicate its land as a town or village green or for public rights of way.

Such actions can trigger the assertion of claims when inaction would be beneficial and need to be carefully considered.

Costs

Typically the developer will be responsible for the costs of the landowner entering into the Option Agreement. That obligation will not become binding until the Option Agreement is signed. Should the developer not proceed to enter into the Option Agreement, the landowner will be left with a sizeable legal bill. To guard against this a Solicitors’ Undertaking should be obtained so that those legal fees will still be paid by the developer even if it decides not to enter into the Option Agreement. Contact: Real Estate www.roydswithyking.com T: 0800 923 2065 Option Agreements – some key provisions

1. ensuring that the planning permission that triggers exercise of the option maximises the value of the land. 2. a timetable of the developer’s obligations so that both parties are clear what is expected and to commit the developer to investing money into the site early on so that it has a commercial imperative to achieve planning permission so as to recover its expenditure. 3. the right to use the land as freely as possible while planning is sought and obtained without prejudicing obtaining planning permission 4. protection of the use, value and future development potential of remaining land which is not sold for development after planning permission is obtained. 5. sharing in any future payment arising from the purchased land being used to access or provide services to adjoining land. 6. the developer making available to the landowner the investigations and reports it has commissioned if the option is not exercised. 7. the ability to terminate the agreement if the developer is in persistent or substantial default of the agreement.

Worked examples

In negotiating heads of terms, you should require the developer to provide some worked examples of the price formula in the option agreement so you can understand what you are likely to receive if the option is exercised. Where the formula is simple, then this will simply give you some idea of what the developer thinks the land may be worth. Where the formula is more complicated, it will give you a better understanding of the relative priorities of deductions as well as the extent to which the monies you will receive are reduced down from the gross market value.

Tax Planning

If you think your land has development potential, the sooner you address mitigating the amount of you will pay - should development be achieved - the better. The value of the land will increase with each step taken towards obtaining a planning permission (known as hope value). The value will not remain static until planning permission is obtained.

Sham transactions or actions taken solely for the purpose of avoiding paying tax can be set aside by HM Revenue & Customs; legitimate tax planning will generally stand the test of challenge.

Unknown unknowns

Parties to a development transaction will seek to know as much about the land and the possible risks to the development but despite this there is always the possibility of something unknown or beyond the control of the parties coming to light and which adversely affect the potential development. It is important to reduce this risk as much as possible as it may prevent development being achieved altogether or the market value of the development if planning permission can still be achieved.

For more information on Option Agreements or any other commercial issue, contact our expert Real Estate team.

Contact: Real Estate www.roydswithyking.com T: 0800 923 2065

Royds Withy King LLP is a limited liability partnership registered in England and Wales with registered number OC361361. Royds Withy King LLP is authorised and regulated by the Solicitors Regulation Authority. The term partner is used to refer to a member of the Royds Withy King LLP or an employee or consultant with equivalent standing and qualification. A list of members is available at the registered office 5-6 Northumberland Buildings, Queen Square, Bath BA1 2JE. Information contained in this communication does not constitute legal advice. All statements are applicable to the laws of England and Wales only.