People buying and selling land often use ‘option to purchase’ or ‘pre-emption’ agreements to commit the other party in the transaction to the sale. While the two agreements may seem similar, they are in fact significantly different.
With option to purchase agreements (also known as call options), the buyer is given the right to buy the land for a certain period of time. The option may be subject to certain trigger event(s) e.g. the buyer obtaining planning permission for the development of the land. If the specified event(s) occurs, the buyer then has the right to purchase the land.
Under a pre-emption agreement (sometimes called a ‘Right of First Refusal’), however, the prospective buyer only has the right to be first in line to buy the land, if the owner decides to sell within the pre-emption period.
An option to purchase agreement, therefore, gives the buyer rights over the land, and will also bind a future owner of the land too.
Under a pre-emption agreement, however, it is up to the landowner to ‘trigger’ the agreement, by indicating an intention to sell the land and if they decide not to do so, the pre-emption rights will not come into effect. Nevertheless, pre-emption rights in regard to registered land take effect at the time of their creation and can therefore be binding on subsequent owners.
Under English law, option to purchase agreements must be in writing in order to be binding, as they are ‘contracts for the sale of land’.
Pre-emption agreements do not need to be in writing, although it is wise to do so. Under a pre-emption agreement, the contract only comes into effect when the trigger event occurs and the holder can then make their offer to purchase. The landowner must then accept this and at this point, the contract must be put in writing. There are different tax implications for both options to purchase agreements and pre-emption agreements, so it is advisable to take professional advice when negotiating.
Martin Jinks is a Consultant Solicitor in our expert Commercial Property team and also a Notary Public.
For more information on option to purchase agreements and/or pre-emption agreements, please contact Martin or another member of the team in Derby, Leicester, or Nottingham via our online enquiry form or call 0800 024 1976.
This article is for information only and does not constitute legal/financial advice. Please contact us for advice tailored to your specific position. Some of the content presented on our website has been generated with the assistance of Artificial Intelligence (AI). We ensure that all AI-generated content meets our high standards for accuracy and relevance. ×
