RURAL land has always been attractive to property developers and with recent changes in planning policy interest has increased. However, developers usually only want land where they know planning permission will be granted.

To enable them to secure this land, while having the right to walk away if permission cannot be obtained, you may be asked to grant the developer an option to acquire.

In Yorkshire, call options are particularly popular.

Andrew Little, commercial property expert with Pearsons and Ward Solicitors in Malton, explains how they work.

In simple terms, a call option gives a developer the legal right to buy a piece of land, usually for a pre-agreed price, provided planning permission is granted. If planning permission is refused there is no obligation to proceed.

The right to exercise the option usually has a time limit and requires a non-refundable payment to be made to the landowner. If drafted carefully this can be a useful way of securing a land sale.

Advantages for a seller

While an immediate sale of your land might be preferable, by granting an option it may be possible for you to negotiate a better purchase price and to retain the non-refundable holding payment you receive upfront even if the sale does not go ahead.

It may also be possible to negotiate the inclusion of an overage payment as part of the option deal.

This could entitle you to share in the increased value of the land as a result of planning permission being granted, either by entitling you to a fixed sum or to share in the profit the developer makes on resale.

Need for legal advice

Option agreements create legally enforceable rights, so you need to make sure that you understand what you are being asked to sign. A solicitor should be consulted to ensure that the option makes it clear:

l which area of land it relates to;

l the agreed purchase price;

l overage provisions, if appropriate, together with the grant of a reverse option entitling you to buy the land back if the overage payment is not made;

l what needs to happen before the option becomes exercisable, for example planning permission being secured;

l for how long the option will exist and whether an extension may be negotiated;

l the amount of the non-refundable deposit and whether this is to be deducted from or in addition to the purchase price;

l the basis on which the option may be terminated; and

l how any disputes should be resolved.

In the context of land currently being farmed, it is also important to get agreement on land use while efforts to secure planning permission are made, and on the amount of notice that must be given where permission is granted to enable agricultural activities to be discontinued without loss of revenue.

Where the land over which the option is granted is owned by more than one person, care will need to be taken to ensure each landowner receives a fair share of the sale proceeds.

Consideration will also need to be given to the grant of further options where the present development site is bordered by more land in your ownership which the developer may be interested in acquiring in the future.

If you are thinking about selling agricultural land to a developer, or have any other property requirements, phone Andrew Little on 01653 692247 or email Andrew.Little@pearslaw.co.uk