Artington Newsletter - March 2015

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What are my options?
Option Agreements for Developers

With the rate of building now likely to plateau later in 2015, developers may now be looking for new projects and to rebuild their land banks. Many will want to hedge against the peaks and troughs of a volatile market by taking options on possible development sites.
 
Ian Jones of Artington Legal looks at important issues in an option agreement for developers.
 
I. Identify the Owners – land may be owned by several parties or in several parcels. Tying up the owners can be like herding cats, but it is vital that all are brought under one option agreement. This reduces the risk of one holding out for a better deal.
 
2. Who is the “Developer” – are you going to create a special purpose vehicle to hold the land? Consider rights of assignment of the agreement and the right to charge the option. You may need to move the option around the corporate group or grant a charge over it to secure early funding.
 
3. Planning – make sure you control the planning process. Ensure that the landowners take no steps to stymie your planning scheme or impose onerous conditions. Consultation rights may be appropriate, but ensure each owner undertakes that they will not oppose planning. Build in appropriate extensions to the option timetable in case you have to go to appeal. Ensure that you can get the landowners’ participation in any Section 106 or similar agreements.
 
4. Covenants and rights over the land – these are often overlooked. Without good due diligence, you can see your profits squeezed through having to make payments to release covenants or alter easements.
 
5. Price – Pricing structures can be a single option payment through to complex structures reflecting milestones such as planning and overage (effectively a share in super profit). Consider how the land is valued after each of these events. Should you restructure the payment if there are unforeseen delays or issues?
 
6. Enforceability – options should be registered at the Land Registry to get the maximum protection against third parties.
 
7. Environmental Costs – who will pay the clean up costs of any environmental problem? Are you going to require the land-owner to contribute? This is of particular importance when dealing with brownfield sites, former petrol stations and redundant utilities sites that are often conveniently located for development.
 
8. Owner’s Activities – restrict what the owners do with the site pending getting planning permission. You should consider restrictions on use. You should also consider who insures the land and any buildings works during the option period.
 
9. Confidentiality – you need to protect the commercial information in your agreement. You do not want other owners of target land finding out what you may be prepared to pay thus inflating prices.
 
Not every issue in an option agreement is mentioned here. Even the most astute and experienced developer can overlook these points when settling the basic option terms.

If you would like more information about option agreements or other real estate issues, please contact our Commercial Property team -
Ian Jones
(ian.jones@artington.com) or Rebecca Keeshan (rebecca.keeshan@artington.com) and they will happily help you.

Ian Jones  - Ian has over 25 years' of legal practice, primarily in Commercial Property.  He advises clients on a range of matters relating to their property portfolios, and on property development matters.  Ian was Senior Legal Counsel at BP as well as Head of Real Estate Legal Team at BT plc.

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Our next Employment Law update will take place on Tuesday 28th April at 10am - please register your interest.

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Rebecca Keeshan  - Rebecca' expertise is in Commercial Property and she has significant experience in acting for developers.  She has a particular interest in residential property development and in the legal aspects of transaction involving the construction and sale of new homes.


Are you in HR and in the travel and hospitality industry?  Would you be interested in joining us at a forthcoming HR Seminar, hosted by New Frontiers, a specialist travel and hospitality recruitment company?  This will take place from 09h00-12h00 on Thursday 26th March. Ruth Renton from Artington will provide an HR Legal Update for Employers.  Please contact us for more details.
















 

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