Vicky McDonald and Michael Higgin of our Commercial Properties team look at the opportunities offered by landowners as they think about how their land could be used for development. «The best option or contract of carriage depends on how you want to participate in the property planning and promotion process,» says Ben Mitchell, a commercial real estate lawyer at Parnalls Solicitors. «An option agreement leaves the planning and marketing process largely in the hands of the proponent. Under a transportation agreement, the landowner is much more convenient and knows the value of the developed land before agreeing to sell it. «If the landowner requires approval of applications and agreements, is the developer obliged to appeal, what other parcels should be included (may be part of a larger project)? While the competitive nature of a promotion agreement is a good thing, the potential downside is that the developer is not necessarily in the best position to understand what local developers are looking for. The risk is that huge sums of money and time will be spent approving the planning of a project that no one wants to buy or could build – either because of the different demands of the local market or because it is not economically viable. As mentioned above, a promotional agreement also allows the landowner to make the final decision on whether to sell or not. If, for some reason, the granted building permit does not increase the value to the expected level, the landowner does not have to sell at all. In contrast, an option contract gives control of this aspect to the developer, who has the discretion to proceed with an option notice and proceed with the purchase. For example, what happens if the option is never exercised? The main disadvantage of an option contract is that after a building permit is issued, the market is not examined at the time the owner sells the land to the developer.
The land would not be placed on the open market for third-party offers, and the landowner is therefore likely to be able to sell the land to the developer under the option agreement for comparatively less than if he had offered the land for sale on the open market. .