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Explainer - Options and Conditional Contracts

on Thursday, 18 February 2016.

Two different types of agreement to consider when developing land.

In this article, we explain two of the main types of agreement to consider when developing land.

Option to Purchase

An option to purchase, commonly known as a call option, is an agreement in which a landowner grants a developer the right to purchase land or property within a specified timeframe.

 During this period, the developer can decide whether or not they want to commit to buying the land or property.

 If the developer does decide to purchase, they can 'call' on the landowner to proceed with the sale. If however, the developer decides that they do not want to buy the land, they are not obliged to do so at any point, and the landowner is then free to sell it to another party at the end of the agreed timeframe.

Another type of option is a pre-emption agreement, where the owner has to offer the property to the developer before they are able to sell it to anyone else.

Conditional Contract

A conditional contract is similar in that a developer will not be bound to purchase a piece of land or property if certain conditions are not satisfied.

Typically, such a condition might be the developer obtaining satisfactory planning permission for their proposed development of the land or property. Once it is obtained, then the sale of the land will proceed on the terms set out in the conditional contract. If it is not obtained, then the developer is not obliged to proceed with buying the land.

Care must be given when defining the conditions of such an agreement, otherwise a developer might find themselves lumbered with a property and planning permission which would make their planned commercial activities economically unviable or impracticable.

The Difference Between the Two

Both types of agreement are advantageous to a developer as they both provide a degree of flexibility when considering the purchase of a piece of land or property.

However, the important distinction is that under an option to purchase, a developer has an absolute discretion as to whether to go ahead with buying property, whereas under a conditional contract, a developer will be bound to complete a purchase once the conditions of the contract are met.


For more information, please contact Jessica Booz in our Commercial Property Law Team on 0117 314 5483.