Option agreements- an important document
An Option Agreement is a document or agreement which is done between a landowner or property owner and a prospective buyer. It is usually done for an amount of money or deposit which is not refundable and wherein the prospective buyer is legally bound to purchase at a particular date or within a set time. It is a wise way for landowners to get an increase in values which is obtained via development without having to go through the cost of getting planning permissions. There might be other situations too – for example, when the developer intends to buy any adjacent land to their site in the future; or if the land which is under development is having multiple owners, a purchaser may buy the whole site in pieces by obtaining option agreements from each owner.
Types of Option Agreements –
There are usually four types of option agreements.
- Call Option Agreement– The purchaser has the right to purchase the property from the owner without an obligation.
- Put Option Agreement – The owner has the right to sell the property to the purchaser again without an obligation.
- Cross Option Agreement – The purchaser gets a call option and the owner gets a put- option.
- Reverse Option Agreement– It is usually used to obtain an overage payment wherein the owner gets an option to buy back the property after the particular event happens if the overage payment doesn’t seem happening. The prices of the resale would show in the increase in the value of the land due to the so called trigger event.
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