Landowners and developers may use an Option Agreement when the value of land or property depends on planning permission that has not yet been granted.
An Option Agreement may also be used where the planning process will take some time, so the money the developer spends on the planning application is protected and the landowner’s obligations are secured.
A professionally drafted Option Agreement matters because its wording decides the price the landowner receives (if the Option Agreement does not have a fixed price), how long the land is tied up and the process for the developer to buy the site after obtaining planning permission.
The developer will submit and progress the planning application at its cost and buy the land only once planning permission is granted. The landowner receives an option fee when the agreement is signed and will sell the land in accordance with the terms of the Option Agreement.
This may include determination of the ‘open market value’ or OMV of the property which will be determined by a surveyor.
An option agreement is commonly used in the following situations:
- A developer or promoter has approached a landowner: The developer wants control of farmland or a greenfield site before applying for planning permission.
- A developer wants to obtain planning permission for a site without buying it outright: The developer avoids tying up capital in land that may never receive planning permission.
- A buyer is assembling a site: The buyer secures several neighbouring plots or properties and buys only once the whole site is controlled and / or planning permission is obtained.
- An existing building has redevelopment potential: The buyer secures the building, applies for planning permission or permitted development for conversion or redevelopment, and commits to buy the building only once permission is granted.
Alternatives to an Option Agreement include a promotion agreement or a conditional contract. These different types of agreement have different mechanisms for the sale and purchase of the property.
What should an Option Agreement include?
An option agreement should identify the land, the option fee, the option period, the price mechanism and the planning obligations, and set out exactly how and when the option can be exercised.
The core terms of an option to purchase agreement are:
- Price mechanism: How the purchase price is calculated. This can be a fixed price or market value less a discount, with any minimum land price and deductions for costs, including section 106 obligations and the Community Infrastructure Levy (CIL).
- Option period: The length of the option, the longstop date and when it can be extended.
- Option fee: The amount paid on grant, and whether it is deducted from the purchase price.
- Planning obligations: Detail about what the developer needs to do to obtain planning, including when they need to submit the application, whether the landowner needs to approve the application, if they need to appeal and how they keep the landowner updated.
- Exercise and completion: How the exercise notice is served, what deposit is payable and when completion takes place. Exercise of the Option Notice is sometimes called ‘exchange’ as this is when the developer or buyer is bound to purchase the land.
- Landowner restrictions: What the landowner can and cannot do with the land during the option period.
- Costs: Who pays each party’s legal, agent and valuation fees.
How do our Option Agreement solicitors help landowners?
Our Land & Development solicitors help landowners by ensuring:
- Price mechanism: To ensure that the Landowner’s instructions are reflected in the Option Agreement. We cannot provide advice on the price mechanism, you will need a valuer to assist with this but if necessary we can recommend a surveyor to assist with this.
- A firm longstop date: A fixed end to the option period, with any extensions limited and paid for if required.
- Planning obligations on the developer: A duty to submit and pursue a planning application by set dates, with sight of the application before it is submitted if required. It is essential that the developer is under obligations to progress the planning application to ensure that the planning is moving forward to avoid delays.
- Protection for retained land: Access, services and drainage rights for the land you keep, with no ransom strip left with the developer.
- A share of future value: If agreed with the developer, we can prepare an Overage Deed to secure an overage payment if the developer later obtains a more valuable planning permission or sells units for more than expected.
- Neighbouring landowners: A collaboration and equalisation agreement where several owners grant options over one site.
Developers often pay towards the landowner’s legal and agent fees, so taking advice on an option agreement need not mean meeting the full cost yourself. The fee contribution is usually agreed at the heads of terms stage, before any drafting has started.
Trustees and charities granting an option must follow additional steps under the Charities Act 2011.
How do our Option Agreement solicitors help developers?
Our Land & Development team helps developers by securing enforceable control of a site, so the money spent on planning is not lost to a defective agreement or a sale to another buyer.
The terms we secure for developers include:
- An enforceable, registered option: An option that binds the landowner and any future owner, protected by a notice on the landowner’s title at HM Land Registry.
- Title checks before the fee is paid: Ownership, access, covenants and third-party rights will be investigated before money changes hands.
- The right to assign: If required, we can draft the Option Agreement so that the developer has freedom to transfer the option to a special purpose vehicle (SPV), joint venture partner or funder.
- Time to fund the purchase: A completion timetable that leaves room to put development finance in place.
- Contractual control disclosure: Submission of the option’s details to HM Land Registry, which the developer must make under the Provision of Information (Contractual Control) (Registered Land) Regulations 2026. Options granted since 8 June 2026 must be disclosed by 6 October 2027, and options granted from 6 April 2027 within 60 days of grant, variation or assignment.
Can I use an Option Agreement template or draft it myself?
An Option Agreement template is not suitable for development land, because the price mechanism, planning obligations and option period must be drafted for the site in question.
An option to purchase land is void unless it is in writing, contains all the agreed terms and is signed by both parties, under section 2 of the Law of Property (Miscellaneous Provisions) Act 1989.
An Option Agreement is an interest in land and, when the Option Notice is exercised, acts as a contract for purchase of land. It is essential that the terms of the Agreement are drafted correctly to ensure the sale can proceed as intended.
When the developer is ready to ‘exchange’ the Option Agreement, the exercise notice must be served exactly as the agreement requires. Any issues with service of the Option Notice or payment of the deposit may result in the contract not being binding.
Mistakes in an option agreement often surface years later, when the land is valued or the option is exercised and sometimes when the relationship between the parties is not so amicable as they were at the outset. By then the terms cannot be changed, and a single loose definition can cost the Landowner part of the price or cost the Developer the site.
Our Land Development solicitors can review a draft option you have already been sent, and tell you what to change before you sign.
“We work with Tim Hotchkiss and his team on the majority of our property transactions covering acquisition, sale and build agreements… attention to detail, proactive nature and responsiveness has always kept us coming back for more.”
Bruce O’Grady, Managing Director, Sherbourne Developments Group Limited.
Frequently asked questions about option agreements
