What is an Option Agreement? A Guide for Landowners
If you own land or a large garden that a developer is interested in, you may be asked to enter into something called an option agreement.
If you haven’t come across this before, it can sound confusing, but it’s actually a fairly common way for developers to secure land while they apply for planning permission. Here’s what you need to know.
The Basics: What is an Option Agreement?
An option agreement is a contract between you (the landowner) and a potential buyer (usually a developer).
The developer pays you an option fee (a sum of money for the right, but not the obligation, to buy your land).
In return, they have the exclusive right to buy your land within a set period of time, known as the Option Period.
It’s important to note: the developer doesn’t have to buy your land. They only have the option to do so if they decide to move ahead.
Why Do Developers Use Option Agreements?
The main reason is planning permission.
Most developers don’t want to buy land unless they’re confident they can get permission to build on it. With an option agreement in place, they have time to:
Investigate whether development is viable.
Apply for planning permission.
Decide whether the project makes commercial sense.
The option agreement prevents you from selling the land to anyone else while they do this.
How Long Does an Option Agreement Last?
It depends on the type of development:
Small sites (e.g. part of a garden or single plot): usually 1–3 years.
Larger, strategic sites: often 5–10 years, because these take longer to plan and secure permission.
Sometimes, the agreement may allow the developer to extend the period (for example, if a planning application decision is still pending).
What Happens if the Developer Wants to Buy?
If the developer decides to go ahead, they’ll serve what’s called an Option Notice. At this point:
They usually pay a deposit.
The option becomes a binding contract for sale.
Completion of the purchase then happens in line with the agreed terms.
Why Might You Agree to an Option Agreement as a Landowner?
There are a few potential benefits:
Unlocking value: Planning permission can increase the value of your land, but the process is expensive and time-consuming. An option agreement lets the developer handle that risk, while you still benefit from the uplift in value if planning is granted.
Option fee: You usually receive a payment at the start, even if the developer never goes on to buy the land.
Hands-off approach: You don’t have to manage or navigate the planning process yourself.
The Risks and Downsides to Be Aware Of
Like any legal agreement, there are things to watch out for:
No guarantee of sale: The developer isn’t obliged to buy, so you could tie up your land for years with no sale at the end.
Restrictions: During the option period, you can’t sell or deal with the land elsewhere.
Timeframe: Long option periods (5–10 years) can feel restrictive, especially if the developer chooses not to proceed.
An option agreement can be a practical way to realise the development potential of your land without having to take on the planning process yourself. But it does mean giving up control for a set period and there’s always the chance the developer won’t go ahead.
Before signing anything, it’s essential to:
Take independent legal advice.
Understand exactly how long the option will last.
Clarify how the land price will be calculated if the option is exercised.
That way, you can make sure the agreement works for you as well as the developer.
