With so many options being agreed I am concerned that if there is not an equal number of development companies with the appetite and financial ability to build these schemes out, then the value of these optioned sites will ultimately decrease. Formerly a property industry secret, the number of option agreements has risen dramatically in recent years, and with numerous local authorities having relaxed their planning policies in order to encourage the creation of new homes, an increasing number of property entrepreneurs are seeing this opportunity as a way of making money. Once your planning advisor has approved the principle of a new build scheme, essential reports will be required, including a topographical survey, parking survey and an arboricultural report. Under a property option agreement, the vendor and buyer agree to a sale price, the vendor receives an option fee, and, if the deal shapes up, the buyer pays the full price when he or she is ready. Broadly, a real estate option is a specially designed contract provision between a buyer and a seller. Property Option Agreements An option agreement is a tool which enables a Buyer, usually of land or property, to buy an “opportunity” to buy the land itself later. The option agreement, to earn a 100% interest subject to a 3% NSR with a 1.5% buyback for $1.5M, is: SAMPLE OPTION AGREEMENT Cash Shares On signing $ 20,000 350,000 1st anniversary $ 30,000 400,000 But in some commercial contracts, the "extra" paragraphs may run to many pages. This option will typically be available for a certain time period and be subject to other specific terms of the option agreement. An option which gives the buyer of the option the right to sell an asset is a put option. In practice, there are many matters which you need to get right. Option Agreements are a legal contract between a landowner and potential purchaser of a site, typically a housebuilder or developer. The first step is a high-level cost/benefit assessment. AMONG: CRYSTAL LAKE MINING CORPORATION, a company duly incorporated pursuant to the laws of British Columbia and having an office address at 13236 Cliffstone Court, Lake Country, British Columbia, V4V 2R1 (hereinafter referred Tax when you exercise the Option Agreement: If you get the Asset via a 3-Generation Testamentary Trust Will then you get the property free of (transfer) stamp duty. To protect yourself however, you must have a water-tight written agreement. When considering the mathematics of an option, there are several variables: Because some of these are subjective, the calculation of a "deal" to offer to the other party is difficult and there is no standard. So you do not need a solicitor to actually enter into a contract - if you know what you are doing. It is this last point that catches people out when they create property option agreements. We act for many seasoned South Australian property investors who often seek our advice about drafting option agreements with … What is an Option Agreement? This article is concerned mostly with dealings in land (real property). The next article in this series covers methodology and finer points and a third compares options with pre-emption agreements and conditional contracts. All rights reserved, options with pre-emption agreements and conditional contracts, option and conditional contract agreements here, Option to buy land and property: extension of term subject to conditions, Option to buy land and property: additional price, Option to buy land and property: standard, the time until the last date by which the option must be exercised, or lapse, the exercise price (the cost of the land or item if the option is exercised), expenses (like professional fees) required to achieve the target reason for seeking the option, the statistical chance of achieving the target reason (such as obtaining planning permission). I would just like to know if you have any property investment mentors who specialise in lease option agreements and wouldn’t mind mentoring me. In the event that Purchaser exercises the option to purchase this property within the initial option period or any extension thereof and is not in default in any other terms of this Agreement, said Option Money shall apply toward the purchase price at closing. An option buys time. The contract is by far the most complicated document in the conveyancing process. So, if you are dealing with a sophisticated owner, by all means take no risks and get it right with a full document. An option agreement is binding only on the seller - because the option holder may choose not to exercise it. After these reports are obtained, the results will allow an architect to prepare drawings for the scheme. Option contracts typically last 12-18 months and in most instances, where planning permission is granted, will allow the seller to achieve a sale price in excess of the property’s market value and the purchaser to purchase the approved scheme at below market value. He may need to ask consent of others to join in the transaction. The document is drafted from the point of view of the developer. Option agreements An Option Agreement is used when a potential buyer of a particular piece of land/property wants to ensure that it is not sold whilst they are trying to obtain planning permission. Option contracts can be used for various properties including real estate, foreign currency and stocks. Remember that the land may be worth more than current actual use value simply by re-building or renovating what is there already. A buyer usually seeks to buy an option when he wants to commit the seller to sell, but before some other event. And often with the 3-Generation Testamentary Trust Will you defer, reduce and sometimes completely escape any CGT if you sell the property. Bruce Burkitt, founder and managing director at Property Experts. Contract entered into by a landowner and a third compares options with pre-emption agreements and contract. 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