For housing developers looking to line up their next potential site, one of the first obstacles to overcome is how to secure it legally while you work through the planning process. Often it comes down to a choice between an option agreement or a contract conditional on planning. Both can get you to the same destination, but the journey to get there is slightly different with each.
In this short blog, we’re going to weigh up the pros and cons of both options, giving you the information you need to make an informed decision on which is the best option for you.
Flexibility
Option agreements
Option agreements typically give you greater flexibility. You secure the right, but not the obligation, to buy the land within an agreed option period. If the planning climate shifts, build costs spike, or your pipeline changes, you can walk away without completing the purchase.
Conditional contracts
By contrast, a contract conditional on planning is more prescriptive. You agree to buy the land if specified planning conditions are satisfied. That brings clearer delivery mechanics, but less wriggle room if the permission you obtain is technically compliant yet commercially unattractive. Drafting can build in suitable thresholds for what is considered a compliant planning permission, but conditional contracts do, by design, hold a developer to a tighter leash than an option agreement would do.
Financial Commitment
Option agreements
Options usually require an option fee, which may be non‑refundable and is often deducted from the price if the option is exercised. Whilst you proceed at risk of the ongoing planning spend and any agreed promotion or holding costs, you avoid tying up the full purchase price until you are ready to proceed, which can be cash‑efficient and lender‑friendly.
Conditional contracts
Conditional contracts typically involve a larger initial commitment, typically a percentage of the overall purchase price which is paid by way of deposit, and require the purchase price to be paid on completion once the condition is satisfied. If the condition is met, you must complete or face the consequences of defaulting.
Risk Management
Option agreements
By their nature, options push planning and other market risk assessments out into the option period. You can pursue planning knowing that you’re not obliged to complete whether or not the permission or market conditions at the time of obtaining the permission stack up. The trade‑off is that you bear the planning costs and risk the option expiring without a result, or your seller becoming frustrated if progress slows.
Conditional contracts
Conversely, conditional contracts will allocate planning risk through tightly drafted conditions. If you fail to obtain an agreed “satisfactory planning permission” by a longstop date, it’s usually possible for you or the seller to terminate the contract without further liability. Whilst that can provide greater certainty, it comes with less discretion: you may be obliged to appeal or accept reasonable conditions (even if commercially they do not work for you), and disputes can arise over whether a permission satisfies the contract test of what constitutes a “satisfactory planning permission”.
Timeframe
Option agreements
Option periods and any extension mechanics need to be realistic, with clear milestones, cooperation obligations, and provision for planning appeals and call-in. Because they typically run over longer timeframes, options are particularly suited to strategic land acquisitions, where allocation, promotion, and appeals can take many years.
Conditional contracts
Conditional contracts favour a clearer timetable for completion, often with a defined longstop date and detailed procedures for submission of the planning application, variations to it, and any obligations relating to planning appeals. They work well for allocated or near‑consented sites, or where both parties want a clear line of sight to completion within a predictable period.
Control Over Development
Option agreements
With options, developers typically drive the planning strategy. You choose advisers, shape applications, and decide what is “good enough” for your scheme before deciding whether or not to purchase the land. You also retain the ability to walk away if value is eroded by planning contribution costs or other onerous conditions.
Conditional contracts
Under conditional contracts, control is shared and managed through the contract. The seller often requires visibility, consultation rights, and approval over planning submissions and changes to it that could affect value. Definitions of “satisfactory planning permission” and provisions on modifications, conditions, and viability are often contentious points with opposing viewpoints. Whilst a conditional contract will give you a route to acquisition if the condition is met, you may need the seller’s cooperation to get there.
Choosing the Right Tool
If you want maximum flexibility, an option agreement is often a better fit, especially for medium-to-long-term strategic land. If you want a clearer path to acquisition once an agreed planning outcome is achieved, and can live with tighter obligations and timetables, a conditional contract can deliver certainty.
Whichever route you choose, careful drafting is key and it is important to build in realistic timeframes, precise definitions of what constitutes a satisfactory planning permission, clear appeal obligations, cooperation clauses, and robust price mechanics.
If you’d like support and guidance with your own legal matter, contact Gorvins Solicitors today. Call us on 0161 930 5151, email us at enquiries@gorvins.com or fill in the online form.