Call options, sometimes referred to as take options, are the most common type of options over land. This type of option agreement allows the developer to 'call' on the landowner to sell a property and is commonly used by developers to secure a piece of land while applying for planning permission.
The landowner and developer will enter into the option agreement, with the developer generally paying to the landowner an option fee. The parties may agree that the option is exercisable at any time during a specific period (the option period) or only on the occurrence of certain events, such as obtaining planning permission. To exercise the option, the developer will serve an option notice on the landowner, and only after the service of such notice (and usually the payment of a deposit) will a binding contract for sale and purchase form.
Many option agreements will allow for extensions to the option period, for example if a decision has not been made on the planning application, or if the developer intends to appeal against a planning condition within the permission. Landowners will want to avoid the option period becoming open-ended and will usually require a long stop date - a date beyond which the option period cannot be extended.
The purchase price is often expressed to be a percentage of the property's market value with the benefit of the planning permission obtained by the developer. If the parties cannot agree on a purchase price, the option agreement will allow the parties to instruct an expert to determine a price. The case of Redlawn Land Ltd v Cowley [2010] EWHC 766 (Ch) highlights the need to fix a valuation date when the expert is ascertaining the purchase price. The landowner in this case argued that the valuation date should have been the date the expert was instructed, while the developer argued the valuation date should have been the date the valuer ascertained the price. In this case, the court determined that the valuation date was when the expert actually determined the purchase price. If the valuation date is left uncertain, the range of valuations may vary widely if land prices are moving rapidly. A fixed date therefore removes the incentive for a party to delay ascertaining a purchase price to take advantage of a falling or rising market.
The grant of an option creates an equitable interest in land which should be protected by registration of a notice at the Land Registry. Registration of the option provides the developer with protection if the landowner purports to sells the land to a third party and ensures that the disposal will be subject to the option.