In brief – Developers should consider a range of factors
when negotiating options to acquire real estate
Access to the property, the right to lodge development
applications, the right to market the property and the right to
extend the option period are among the aspects of an option
agreement that developers should consider.
Need for strict compliance with specifics of option
This article addresses factors that property developers should
consider when negotiating options to acquire real estate.
However, developers need to be aware that a long line of
decisions of the courts around Australia demonstrates that time is
of the essence in most instances where options are concerned,
particularly with regard to payments and exercise of rights; and
that strict compliance with what is in the option agreement is
required to exercise an option validly.
What should property developers consider when negotiating
Developers need to turn their mind specifically to the following
matters in approaching negotiations.
The term of the option.
Any rights to extend the option period, any
criteria that have to be met to exercise these rights and any
payments to be made for these extensions.
What access is required to the property during
the option period and how this right is exercised or limited.
The right to lodge applications and amended
applications, and appeals with respect to the terms of consents
given or any deemed refusals.
Whether there is to be a right to market the
project and effect any off-the-plan sales during the
option period and, if so, the rights to mention the property, erect
appropriate signs and have access for marketing purposes.
Whether any preliminary works (such as
clearing works) which will enhance the value of the property and
give the developer a head start with respect to its development
should be undertaken and what conditions are to apply.
Whether, if there are tenancies, there is to be a right
to negotiate with the tenants or to negotiate tenancies
for vacant space (these arrangements only to come into effect when
the property is owned by the developer).
Whether the fees (including any extension
fees) paid under an option are to form part of the price or are to
be in addition to the price.
The right to put up signs on the property,
particularly advertising applications, and perhaps some for
The need to have the right to caveat the
property to protect the interests under the option.
If there is more than one property, the need to have the
documents in similar terms (particularly from a
financier's perspective) and interdependent.
Considering the specifics of the option agreement in advance
will help you avoid delays
Considering the above matters and any other issues that are
particular to the site you are seeking to acquire will help with
negotiating your option. Furthermore and most importantly, it will
enable the documents to be concluded quickly once a commercial
agreement has been reached.
There is nothing more frustrating than having the documenting of
the transaction significantly delayed while the parties thrash out
an agreement over questions which they did not discuss during their
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