Developer contacted me for my property subject to an Option

JonSimons

Hi All
A developer contacted me friday via mail, for my property. It was an unsolicited approach and they included the option agreement with it etc.

I was wondering if anyone knows much about this kind of thing here?

The option agreement felt very loose, and didn't cover everything i feel.

So was wondering about the following as I feel its a good price and was actually looking to maybe move in the future.

1) What is the usual length of term in an agreement for an option to purchase when planning permission is being sought and also what is the shortest reasonable term for this purpose?

2) What are the benefits and pitfalls of options to purchase for the person selling the property?

3) Is it reasonable to ask for a 10% non refundable deposit for an option term?

4) Should all details regarding a sale be agreed before signing an option or is it usual to sort those details out after signing and option agreement?

5) How can I protect myself against someone posing as a potential purchaser, who has no real intention to follow through with it, i.e. how can I ensure that an option agreement won’t simply be used to stop me from dealing with my property for a set period of time?

6) Should you tell a mortgage provider (if you have one), that you have signed an option agreement?

7) Are there any tax obligations with an option?

8) After signing an option agreement, can an intending purchaser whittle away at the agreed price? And if so what can you do about it?

9) Can an intending purchaser transfer or sell the option?

10) If you need to sell within that time frame, can and how do you get out of an option agreement and what would be the repercussions?

11) What if the Developer never once submits a planning.

12) Should "how the developer intends to purchase the property be included" i,e If they then have to take granted planning permission to the bank for money to buy the property.

13) What happens if Planning granted, but they dont actually have the money in their bank, or bank refuses the developer a loan.

I thank everyone in advance

Jon

agrinnall

I would see a solicitor for proper advice (not saying you'd get improper advice on here, but you have no comeback to anything posted on a forum).

JonSimons

agrinnall wrote: »

I would see a solicitor for proper advice (not saying you'd get improper advice on here, but you have no comeback to anything posted on a forum).

Hi I do intend to do this also, but in mean time wanted to get some thoughts from anyone regarding it, incase they have done so in the past, or came unstuck doing options etc.

I showed my solicitor but he said i need to speak with a soliciotor who specifically deals with property, and my appoint is in 2 weeks, so wanted to see in the mean time

davidmcn

JonSimons wrote: »

1) What is the usual length of term in an agreement for an option to purchase when planning permission is being sought and also what is the shortest reasonable term for this purpose?

Not sure what would be a reasonable timescale, but an option agreement to me suggests that they don't intend to apply for planning immediately - some options last a fair number of years, where e.g. developers know they wouldn't get planning now but that policies might change in the medium term.

2) What are the benefits and pitfalls of options to purchase for the person selling the property?

Only real benefit is that you'd get some cash upfront for the trouble of entering into the option. Pitfalls are that the purchaser might not get planning (or whatever else they need to do e.g. acquire neighbouring sites) or might for other reasons decide not to proceed - whereas with a conditional contract for a purchase you'd generally get the buyer to be obliged to apply for and do their best to get planning, and they'd have to complete if they got a (reasonably) suitable consent.

3) Is it reasonable to ask for a 10% non refundable deposit for an option term?

Something like that, not sure what would be average.

4) Should all details regarding a sale be agreed before signing an option or is it usual to sort those details out after signing and option agreement?

You need to agree all the details upfront - so you'd have a "normal" unconditional sale contract included, which is what would be triggered if the developer exercises the option.

5) How can I protect myself against someone posing as a potential purchaser, who has no real intention to follow through with it, i.e. how can I ensure that an option agreement won’t simply be used to stop me from dealing with my property for a set period of time?

The whole point is that they don't need to follow through with it - it's an option. Never heard of it happening though, why would they want to go to the expense?

6) Should you tell a mortgage provider (if you have one), that you have signed an option agreement?

If it's being secured with a charge over your property then (I think) in England & Wales you'd need your lender's consent. You don't in Scotland. It would complicate any remortgages during the option period, and obviously prohibit sales (or any minor dealings with the property).

7) Are there any tax obligations with an option?

Pass. Think the option payment is treated as capital, so for your main residence is exempt from CGT.

8) After signing an option agreement, can an intending purchaser whittle away at the agreed price?

No, the price (or some objective way of calculating it) would be part of the contract.

9) Can an intending purchaser transfer or sell the option?

Yep, unless you prohibit them. But they'd probably want the ability to do so.

10) If you need to sell within that time frame, can and how do you get out of an option agreement ?

Not generally.

11) What if the Developer never once submits a planning.

As above, they probably wouldn't be required to, unlike a conditional contract.

12) Should "how the developer intends to purchase the property be included" i,e If they then have to take granted planning permission to the bank for money to buy the property.

Not sure what you mean. If they exercise the option then how they get the money is up to them.

13) What happens if Planning granted, but they dont actually have the money in their bank, or bank refuses the developer a loan.

As above, they wouldn't exercise the option if they can't get the money.

I would ask them to be meeting your legal costs in the first instance anyway.

da_rule

JonSimons wrote: »

Hi All
A developer contacted me friday via mail, for my property. It was an unsolicited approach and they included the option agreement with it etc.

I was wondering if anyone knows much about this kind of thing here?

The option agreement felt very loose, and didn't cover everything i feel.

So was wondering about the following as I feel its a good price and was actually looking to maybe move in the future.

1) What is the usual length of term in an agreement for an option to purchase when planning permission is being sought and also what is the shortest reasonable term for this purpose?

2) What are the benefits and pitfalls of options to purchase for the person selling the property?

3) Is it reasonable to ask for a 10% non refundable deposit for an option term?

4) Should all details regarding a sale be agreed before signing an option or is it usual to sort those details out after signing and option agreement?

5) How can I protect myself against someone posing as a potential purchaser, who has no real intention to follow through with it, i.e. how can I ensure that an option agreement won’t simply be used to stop me from dealing with my property for a set period of time?

6) Should you tell a mortgage provider (if you have one), that you have signed an option agreement?

7) Are there any tax obligations with an option?

8) After signing an option agreement, can an intending purchaser whittle away at the agreed price? And if so what can you do about it?

9) Can an intending purchaser transfer or sell the option?

10) If you need to sell within that time frame, can and how do you get out of an option agreement and what would be the repercussions?

11) What if the Developer never once submits a planning.

12) Should "how the developer intends to purchase the property be included" i,e If they then have to take granted planning permission to the bank for money to buy the property.

13) What happens if Planning granted, but they dont actually have the money in their bank, or bank refuses the developer a loan.

I thank everyone in advance

Jon

1) How long is a piece of string? It will depend how long the developer thinks planning (or whatever trigger they will use) will take to complete. It may also depend where your property is in relation to the scale of the development. For example, if the development is scheduled over 4 phases and your property is in land included in the 4th phase they may not want it for a number of months or years. You need to agree a length you are comfortable with, as this will greatly impact on your ability to sell the property should you need/want to move.

2) Benefits = Potential income on signing the option agreement (whether this will be non-refundable will depend on your negotiating skills). Sale price agreed in advance, either by setting a value or by reference to formulas/open market values.
Pitfalls = You will struggle to sell the property (if the option allows you to) during the option period. If you get the formula wrong for the sale value of the property you may lose out. If the developer does not exercise their option you may have tied yourself in with no sale. If the developer does not exercise the option but still proceeds with some of the development around your property it may devalue your property (which could then, if they're clever with their wording impact on how much they then pay for your property). You may have to consult your mortgage lender (if you have one). If the developer exercises their option you may have little to no control over when you have to leave the property. It may also mean that you cannot change lender during the agreement period, which, if you are due to remortgage, could cause a problem. The agreement will also usually contain a clause that you cannot object to the planning application, which, depending on whether you have any other property interests in the area, may curtail your rights. Option agreements (unlike normal contracts for sale) are also usually only enforceable by the buyer, this means that, even if the trigger event happens, unless the buyer gives notice that they want to exercise their option, you cannot compel them to do so.

3) It's reasonable to ask. Whether they will agree to the non-refundable element is another matter. Obviously, if the future price is agreed by reference to outside matters (market value/RPI/CPI etc) then you may just want to work out how much the inconveniences above are worth to you and ask for that. But this will obviously be deducted from any future sale price (unless you are very good at negotiating and they are desperate).

4) Yes. Normally you attach a copy of the agreed transfer deed to the agreement with everything filled in except the completion date and the purchase price. What should also be agreed is the trigger for them being able to exercise their option. Is it outline planning, is it detail planning etc. It should also be agreed how much notice they have to give and how they give such notice.

5) Getting a deposit is a good start. Also, if the developer is a limited company you could check them out on Companies House (check out their accounts etc). Also, when you instruct a solicitor they should do due diligence on your behalf.

6) Options normally aren't secured by charge. It'll usually be a unilateral notice and/or a restriction. However, the option may bind the lender if they go into possession so you should speak to them. Again, I'd be expecting the solicitor to do this. It may be that the lender wants to be a party to the agreement.

7) No tax implications for you. The deposit will be treated as a normal contractual deposit in relation to property sales as will the sale price.

8) No, the sale price (or the formula to calculate it) will be agreed. If market conditions really change they can always ask to amend the agreement, but you can say no, or make them pay for it. They are then free to not exercise their option.

9) Normally yes. An agreement can normally be assigned, you may be able to restrict this, however most developers will want/need the ability to be able to assign it to other companies within their group of companies. You should ensure that, where an assignment happens, there are terms in the agreement to ensure that you are notified so that you always know who has the benefit of the agreement.

10) You generally can't. You may be able to assign the agreement yourself, however the property may not be worth much, especially if the option could be triggered at any time.

11) Unless you get a term that compels them to (which they probably won't agree to) you can't ensure they will. This is where the long stop date becomes important. Also, you can have multiple long stop dates, i.e. the agreement ends if they don't apply for planning within XX time, if they do apply it then expires XX time from the grant of permission etc.

12) The type of consideration should be agreed (e.g. cash). Although sometimes you get mixes, they might be willing to give you some cash and one of the new properties. Sometimes they even offer shares etc. If they trigger the option and then don't pay then you don't complete the transfer and you would have an action against them for breach of the agreement.

13) Then they won't exercise the option and it will lapse when the relevant long stop date passes.

JonSimons

wow these replies have been awesome and i thank you greatly, I welcome more also, just so i have a collective of great thoughts thanks so much

stator

You haven't said exactly what he is offering you and what he plans to do?


If I definitely wasn't planning on moving and he was offering cash for an option agreement, I might consider it.


But if there's scope for development, why not get the planning permission yourself, then sell the house with PP?