COMMERCIAL PROPERTY – EXAM NOTES
OPTION AGREEMENTS
STEP 1: WHAT KINDS OF OPTIONS ARE THERE?
Call Options: Put Options
Seller grants the buyer a call option Buyer grants the seller a put option
Buyer gives agreed monies to the seller and seller grants the Seller gives the agreed monies to the buyer, and the buyer
option grants the option
Option is that buyer has the right to serve notice on the Option is that the seller can force the buyer to buy the
seller, forcing the seller to sell the property property
Buyer does not have to exercise this right and can choose to The seller does not have to exercise this right, but can
let it lapse choose to let it lapse
STEP 2: WHICH KIND IS MORE APPROPRIATE HERE?
Level of control? Call option puts buyer in the driving seat, put options give control to the seller
A developer might acquire a series of call options over neighbouring land plots because:
1. They will only want to purchase the land if they can guarantee getting a certain area
2. They think the land might be useful in the future, but are not sure of how far they could develop the land at this point
in time.
STEP 3: DRAFTING THE OPTION AGREEMENT
Exercising the option: Parties can set out a specific method or incorporate s 196 LPA 1925
Fee: need to agree an option fee. If the developer-buyer is asking for a call option to be granted by a seller, when a seller has
another potential buyer ready to purchase the land, then the option fee is likely to be very high and non-refundable
Consideration: agreement may set out how the consideration is going to be calculated if the option is exercised e.g. buyer
may pay a set sum, or the amount may be calculated depending on the market at the time of exercise
Rights: buyer may request seller does not give anyone else rights over the property for the duration of the option e.g.
developer would want to purchase the land as it was at the date of the option
Granting rights over the land to third parties could cause inconvenience to the developer later on
Buyer would want to be kept informed of such happenings, or negotiate a term in the contract stating the seller
requires the buyer’s written consent to do so
Tax: consideration paid for grant of the option will be subject to SDLT. Person receiving option will want the agreement to
state the amount is inclusive of VAT
STEP 4: EXERCISING THE OPTION
Party in control – buyer for a call option and seller for a put option – will serve on the other party a written notice within the
period specified in the option agreement, in accordance with the method of service set out in the agreement
STEP 5: WHAT HAPPENS NEXT?
Parties will go through with the purchase, as set out in the option agreement. Option will allow for title and other searches to
made before the parties complete.
OPTION AGREEMENTS
STEP 1: WHAT KINDS OF OPTIONS ARE THERE?
Call Options: Put Options
Seller grants the buyer a call option Buyer grants the seller a put option
Buyer gives agreed monies to the seller and seller grants the Seller gives the agreed monies to the buyer, and the buyer
option grants the option
Option is that buyer has the right to serve notice on the Option is that the seller can force the buyer to buy the
seller, forcing the seller to sell the property property
Buyer does not have to exercise this right and can choose to The seller does not have to exercise this right, but can
let it lapse choose to let it lapse
STEP 2: WHICH KIND IS MORE APPROPRIATE HERE?
Level of control? Call option puts buyer in the driving seat, put options give control to the seller
A developer might acquire a series of call options over neighbouring land plots because:
1. They will only want to purchase the land if they can guarantee getting a certain area
2. They think the land might be useful in the future, but are not sure of how far they could develop the land at this point
in time.
STEP 3: DRAFTING THE OPTION AGREEMENT
Exercising the option: Parties can set out a specific method or incorporate s 196 LPA 1925
Fee: need to agree an option fee. If the developer-buyer is asking for a call option to be granted by a seller, when a seller has
another potential buyer ready to purchase the land, then the option fee is likely to be very high and non-refundable
Consideration: agreement may set out how the consideration is going to be calculated if the option is exercised e.g. buyer
may pay a set sum, or the amount may be calculated depending on the market at the time of exercise
Rights: buyer may request seller does not give anyone else rights over the property for the duration of the option e.g.
developer would want to purchase the land as it was at the date of the option
Granting rights over the land to third parties could cause inconvenience to the developer later on
Buyer would want to be kept informed of such happenings, or negotiate a term in the contract stating the seller
requires the buyer’s written consent to do so
Tax: consideration paid for grant of the option will be subject to SDLT. Person receiving option will want the agreement to
state the amount is inclusive of VAT
STEP 4: EXERCISING THE OPTION
Party in control – buyer for a call option and seller for a put option – will serve on the other party a written notice within the
period specified in the option agreement, in accordance with the method of service set out in the agreement
STEP 5: WHAT HAPPENS NEXT?
Parties will go through with the purchase, as set out in the option agreement. Option will allow for title and other searches to
made before the parties complete.
