Option Agreements - Considerations for Property Owners

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Sidrah Ashraf - Associate

3 minutes reading time

What are option agreements?

An option agreement is a contract between a residential or commercial property owner and a prospective buyer that grants the buyer the option to purchase the property within a set period, usually at a certain price. The buyer is not usually obliged to proceed with the purchase of the property if they decide that they do not wish to do so.

Option agreements typically last between 3-5 years, meaning property owners can be prevented from selling the land to anyone else for long periods, and agreements can also include the right to extend the time. Long extensions can be burdensome on the property owner, particularly when there is no sale guarantee to the prospective buyer who has tied up the property.

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When are option agreements used?

There is a range of transactions where an option agreement may be used. Option agreements are particularly popular with commercial and residential developers who want to secure potential sites due to the ongoing shortage of commercial and residential land available for development in the UK.

Option agreements can also be used, for example, by a tenant leasing property from a landlord who would like to be able to purchase the freehold of the property at a future date if their business proves to be successful.

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When are option agreements used

Considerations for property owners

Property owners should seek legal advice if they are approached by a prospective purchaser proposing to enter into an option agreement. Purchasers are often willing to pay for the property owner’s legal costs to incentivise them to enter the deal.

Key points for consideration include:

  1. How long will the option agreement be valid for (option period)?
  2. Is any consideration being paid in exchange for the grant of the option (commonly referred to as an option fee)?
  3. As property prices fluctuate with time, will the purchase price be fixed, or should there be a mechanism for calculating the purchase price later, for example, by reference to increases in the Retail Price Index?
  4. If the property is mortgaged, will lender consent be required before the option agreement is entered?
  5. Does the prospective buyer need to apply for planning permission concerning the property, and what rights of access and investigation might they require in connection with this?  
  6. Will either party be able to terminate the option agreement during the option period, and what would be the relevant trigger events?  

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Considerations for property owners

Site-specific considerations

There are also likely to be site-specific considerations, particularly if the property owner is retaining part of the property and may need to reserve rights over the land being transferred under the option agreement. The installation and future maintenance of boundary features such as fences and gates must also be considered.

The solicitors in our Real Estate team can assist with negotiating and exchanging option agreements. We can also recommend surveyors to assist you with the valuation of your property or land to help ensure that you are being offered reasonable terms.

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Site specific considerations

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Our expert commercial property solicitors can help will all aspects of option agreements. You can contact our team of professionals via the contact form below or by calling:

0161 941 4000

Sidrah Ashraf's profile picture

Sidrah Ashraf


Sidrah has 6 years of experience acting as a Commercial Property solicitor. Sidrah has specialist expertise in landlord and tenant work, acquisitions and disposals, property development and finance acting for a range of corporate and individual clients.

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