Definition
Option agreement
A contract that pays you a small fee in exchange for the developer's right — but not their obligation — to buy your land at a pre-agreed price. You're locked in; they aren't.
In one sentence
An option agreement gives a developer the legal right to buy your land at a defined price within a defined window, usually after they have secured planning. They can walk away; you can't sell elsewhere.
Typical commercial terms
- Option fee
- £1,000 – £25,000 paid up-front, usually deducted from the eventual sale price. A token amount in commercial terms.
- Option period
- Commonly 5 years, often with the developer's right to extend by another 2–5 years. Long enough to take a difficult site through appeals.
- Exercise trigger
- Grant of an acceptable planning permission. "Acceptable" is defined in the contract — watch for vague definitions that let the developer walk away from anything imperfect.
- Purchase price
- Either a fixed sum, or a percentage of market value at exercise (typically 85–90%), less abnormal costs and an allowance for affordable housing. The discount compensates the developer for carrying planning risk.
- Costs of planning
- Paid 100% by the developer.
- Restrictions on you
- A legal charge or restriction registered against the title — you can't sell, mortgage further or develop yourself during the option period.
Pros and cons for landowners
Pros
- No planning costs or risk on you
- Upfront option fee in your pocket
- Pre-agreed price gives certainty
- Developer handles the whole process
- If the option lapses, the land comes back free of restrictions
Cons
- Capped upside — you lose if values rise
- Land tied up for 5+ years
- Misaligned interests: developer wants to pay you less
- Developer can walk away — leaves you behind
- Tax events on grant and exercise need careful planning
The structural problem with options
In an option, the developer's interest is to pay you as little as possible. The price is either fixed, or pegged to a market value assessment they have influence over. So:
- A developer benefits from getting a smaller permission, because a smaller scheme often has a lower price-per-acre formula.
- A developer benefits from finding "abnormal" costs (drainage, ground conditions, contamination) — most option contracts let them deduct these from the price.
- A developer can stretch the timeline by appealing, re-applying, or renegotiating, while the land continues to appreciate.
None of this is bad faith — it's just the structure. A promotion agreement flips the incentives the other way: the promoter is paid as a percentage of the eventual sale, so they're motivated to maximise it.
Option vs promotion vs serviced plots
| Option | Promotion | Serviced plots | |
|---|---|---|---|
| Who pays planning? | Developer | Promoter | You (or partner) |
| Upside if values rise | Capped | Shared | All yours |
| Indicative net result | 15–30% of GDV | 25–35% of GDV | 40–50%+ of GDV |
| Effort from you | Very low | Low | Medium |
See our full deal-structures comparison for worked examples.
Clauses to negotiate carefully
- Definition of "acceptable" planning permission — don't let the developer wriggle out over minor imperfections.
- Minimum density / minimum unit count — protects against a developer being granted permission for fewer homes than expected purely to lower the price.
- Abnormals cap — limit the deductions the developer can make for unforeseen site costs.
- Long-stop date — a hard deadline beyond which the option lapses, no extensions.
- Affordable housing assumptions — pin these down so the price formula isn't gamed.
- Side-by-side overage — if values rise above the agreed price, share the upside.
Related terms
- Promotion agreement — the option's better-aligned cousin.
- Hope value — what the developer is buying from you.
- Overage — how to share the upside without losing the deal.
- Conditional contract — a stronger commitment than an option.
Been offered an option?
We'll give you a free, plain-English second opinion on the offer alongside an indicative serviced-plot alternative.