Option agreement top tips | extensions to option period

28 Jun 2019

In the third of our series of key points for developers entering into option agreements, we’re looking at extensions to an option period.
When agreeing heads of terms, developers will often ask for an initial option period in which to try and obtain planning permission and then an additional period which will be triggered, if certain events haven’t occurred by the end of this initial option period (“the extensions”). 
In our experience, when agreeing heads of terms, developers often ask for extensions if there is an undecided planning application, appeal, or the Judicial Review Period hasn’t passed.  There may however be other things which developers may wish to think about when agreeing heads of terms for extensions:-
  1. Is there to be an overall longstop date?  An overall longstop date gives a both parties certainty that if the agreed events don’t occur by a specified date, the option agreement will automatically come to an end.
  1. Do you want the option to carry on in other circumstances and not just if you don’t have a planning decision?  For example, do you want the ability to extend if you haven’t managed to deal with any title issues which affect the site, or if you haven’t cleared down any pre-commencement conditions?
  1. Should the extensions apply more than once?  For example, if the option is extended because you don’t have planning permission at the initial expiry date and then you subsequently get a refusal, you may wish to submit another planning application. 
  1. Some landowners don’t like planning extensions as they dislike the uncertainty that they bring; would it be easier to simply agree a longer option period with no extensions?

Careful thought therefore needs to be given, at the heads of terms stage, if you require extensions to ensure that the landowner and the developer are on the same page at the start of the transaction.  

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