Exercise of an option agreement and subsequent acquisition

29 November 2023

I acted for a developer in respect of the exercise of an option agreement and subsequent acquisition of a site, for residential development. The option agreement had been entered into back in 2001, for an option period of 21 years.

The option allowed the developer to renew the option on an annual basis by paying an option fee, which the client had been renewing for a number of years. The option also provided that it was exercisable within 20 working days of completion of the s106 Agreement.

The client encountered various delays in agreeing the s.106 Agreement and obtaining planning permission, due to delays in the local plan being prepared by the Local Planning Authority. As such, there was a delay in exercising the option. Whilst there was provision in the option to waive the requirement to obtain planning, the client was reluctant to proceed via that route, as they wanted to acquire the site for residential development and didn’t want to be compelled to acquire a site that they cannot obtain suitable planning permission for. The planning application was submitted in 2014 and had been approved at Planning Committee in 2014, but there were delays finalising the section 106 Agreement relating to highways matters.

As the option period was fast approaching, we had to provide the client with advice around exercising the option and timings depending on whether an exercise notice was served or a waiver notice was served.

Thankfully the s.106 completed on 5th January 2023 and an exercise notice was served soon after, stating the purchase price using the calculation in the option.

Unfortunately, there was further difficulty around agreeing the purchase price with the landowner and their surveyor. The matter then went to RICS for determination, which delayed completion of the purchase further, and the transaction finally completed on 31 March 2023.

Due to the various delays and timing of buying in the site for development the client decided to sell the site on to a national housebuilder, rather than develop the site themselves. We acted for the client on the subsequent sale, securing a turn overage and net sale overage over the development site in favour of my client, and also retaining a ransom strip between the site and adjoining site, in the event that the developer seeks to develop the adjoining land in the future.

Overall, the client was very happy to put to bed the longstanding option and acquire the site, and to go on to dispose of the site on very favourable terms.

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