There are several advantages to developers of taking a call option:

• The developer has complete discretion over whether to buy the property.

• The developer can secure the property from its competitors for the length of the option period.

• The developer can apply for planning permission knowing that it can buy the property if it is successful but does not have to buy if planning permission is not granted or if it is granted subject to unacceptable conditions.

• Minimal outlay is required at the initial stages before the developer knows whether planning permission can be obtained.

• An option agreement is registrable, providing protection if the landowner sells the land to a third party.

• It is useful in site assembly where several plots may need to be purchased from different landowners. The developer can ensure it has first secured all the plots before exercising the options.
  

Advantages Of Call Options To Landowners

Although options are usually proposed by developers for their own interests, there are certain advantages to landowners in granting an option:

• The landowner can demand an option sum in return for granting the option and tying up the land for the length of the option period. Sometimes the option sum is a significant amount, and this is usually retained by the landowner whether or not the option is exercised.

• The landowner can take advantage of the developer's experience and skill in obtaining planning permission at no cost to the landowner.

• Where the developer is seeking planning permission to develop a larger site that includes other land, the market value of the property may be considerably increased over and above any development value that the property may have on its own.



Call options compared with pre-emption agreements and conditional contracts

Pre-Emption Agreements

A right of pre-emption over property (also known as a right of first refusal) gives an interested buyer a right to buy the property if, but only if, the landowner decides to dispose of it during an agreed period.

It is different from a call option where the developer has the right to call on the landowner to sell the property to it and the landowner is then contractually bound to sell to the developer.

With a right of pre-emption, the potential buyer cannot force the landowner to sell the property to it. The landowner merely agrees that, should it decide to sell the property during the pre-emption period, it is obliged to offer the property for sale to the potential buyer first. If the landowner does not want to dispose of the property during the pre-emption period, the pre-emption right never becomes exercisable.

In brief, the stages involved with a pre-emption right are:

• The landowner and developer enter into a pre-emption agreement in which the landowner agrees to give the developer first refusal to buy the property (the pre-emption right) in the event of the landowner deciding to dispose of the property during an agreed period (the pre-emption period).

• If the landowner then decides to dispose of the property during the pre-emption period, it must first offer to sell the property to the developer by serving an offer notice.

• The developer has a defined period within which to decide whether or not to accept the landowner's offer (the acceptance period) and to serve an acceptance notice if it does want to proceed.

• If the developer does serve an acceptance notice within the acceptance period, a binding contract for the sale and purchase of the property then arises on the terms set out in the pre-emption agreement.

• If the developer does not serve an acceptance notice within the acceptance period, the landowner is then free to dispose of the property to a third party in accordance with the terms of the pre-emption agreement.