This option agreement provides for the exercise price to be paid in stages as the buyer's development proceeds. This enables the seller to share in any uplift in valuation between the date of the grant of the option and the (later) exercise date. The template also includes a detailed sale contract incorporating the Law Society's Conditions of Sale (2017 Edition).
The ultimate sale price is not known in advance but is calculated after the event. For example, the buyer of the option wants to attempt to obtain planning permission. The seller wants a fair price - he does not want to see the buyer walk away with too large a share of “his” land value.
The price paid to the seller is calculated as a proportion of the increased value. The proportion is a matter for negotiation, reflecting the difficulty of raising the value and the risks and cost to the buyer in time and money.
An option buyer might use this document to give a property seller an additional incentive to act in some way to achieve the higher value outcome, or a seller might use it to ensure he or she shares in the whole profit and not just the first stage.
Example uses of this agreement: for buying land or buildings with a view to development after:
planning permission (or other licence) has been granted
finding a tenant
negotiating with a local authority for a change in status of a listed part
a land or building survey has been completed
financing has been secured