Types of Property Option and Key Commercial Terms
Principal types of property option agreement: (1) Call option: the developer/buyer has the right to purchase; the landowner is bound to sell if the option is exercised; the developer can let the option lapse if planning is not obtained or the development is not viable; the developer pays an option fee (non-refundable; typically 1%�5% of the expected purchase price or a fixed sum); option price may be fixed or set by formula (e.g. RICS valuation at exercise; percentage of GDV less development costs); (2) Put option: the landowner can require the buyer to purchase; usually paired with a call option (put-and-call) to create a bilateral obligation on exercise; (3) Conditional contract: both parties automatically bound to complete once the condition (e.g. planning permission on acceptable terms) is satisfied; no right to walk away after condition met � stronger than a call option from the landowner's perspective; (4) Pre-emption right: right of first refusal; landowner cannot sell to a third party without offering to the right-holder on the same terms first. Key commercial terms for landowners: option period � typically 2�5 years plus extension rights for planning delays; insist on a longstop date; planning obligation � require the developer to submit a planning application within a specified period using reasonable/best endeavours (without this obligation the developer can park the option and prevent the landowner selling elsewhere with no planning progress); trigger event � define 'satisfactory planning' (acceptable conditions; minimum viable development quantum; acceptable s.106 obligations); overage � additional payments to the landowner if the developer realises more value than the option price (development profit share; 5�10 years post-exercise); RICS independent valuation for formula-priced options; developer's break right if insolvent or key milestones missed.
Registration, SDLT, CGT, and Landowner Protections
Registration (England and Wales): register the option agreement as a notice on the landowner's title at the Land Registry; an unregistered option may not bind a subsequent purchaser of the land; the option holder has an equitable interest in the land from the date of the agreement; registration perfects that interest against third parties. Scotland: register in the Land Register of Scotland; Scottish Sasine Register for some older titles. SDLT: two events � (i) on grant of the option: SDLT payable on the option fee if above the SDLT threshold (�0 for residential above �250,000 nil rate band; commercial above �150,000); (ii) on exercise: SDLT payable on the full purchase price; the option fee previously taxed is deducted from the chargeable consideration on exercise. CGT: grant of option = disposal of an asset for CGT; CGT payable on the option fee in the tax year of grant; the option fee is included in the computation of the gain on the disposal of the land on exercise; where the option lapses without exercise, the option fee (if retained) is a capital receipt in the year of lapse. Key landowner protections: (i) longstop date � option must lapse automatically after a maximum period; (ii) planning obligation � developer must use reasonable/best endeavours to submit application within specified period; (iii) satisfactory planning � 'satisfactory planning' definition excluding onerous conditions; (iv) overage � 5�10 years post-exercise; detailed overage mechanism; (v) RICS independent valuation for formula-priced options; (vi) developer break right if insolvent or milestones missed; (vii) right to be consulted on the planning application; (viii) legal costs � developer pays landowner's reasonable solicitor costs of negotiating and reviewing the option. Scotland: LBTT applies to Scottish land transactions.