You as vendor of a property are approached by an agent who says
that he/she has a developer or developers who are interested in
your property (either alone or in conjunction with neighbouring
properties). Set out below are some things you need to discuss with
the agent to make sure that your position is fully protected and
that the parties are in agreement on the fundamental commercial
parameters before progressing to documentation.
Checklist for vendors negotiating options
The following issues need to be considered to protect your
interests as an owner:
What is the option fee? Does this form part of
the price or not?
Will you give an extension to the option
period? If so, in what circumstances and what conditions
have to be met? (For example, certain milestones regarding the
developer seeking finance, development consent or similar issues).
Further, should you be paid a fee for these extensions? Normally
these fees would not form part of the price.
What is the price and how should it be
calculated? Often, the price may be calculated depending
upon the ultimate terms of the development consent obtained by the
purchaser (i.e. there may be some uplift above a base figure if a
certain yield is obtained by the developer).
Consider a provision that if the option is not exercised, you
obtain the benefit of any applications made, or any
consents obtained by the developer and all reports done by
What is the nature of the option? Is it a straight call
option (where it is entirely in the hands of the developer
as to whether it proceeds or not)? Or is it a put and call
option, which means that if the developer does not
exercise its option, you can force the developer to buy by giving
How relevant is the identity of the developer
to your level of comfort? Is it the case that you only wish to deal
with the person who originally approaches you and do not wish the
developer to have the right to assign the option or nominate some
third party whom you may never have met and who may be not
connected with the developer?
Do you ask for guarantees under the contract
if the purchaser is a corporation (especially if there is an
assignment or nomination)?
What is the GST position, particularly with
respect to option fees and generally under the contract?
Should the developer, by virtue of the rights that it wants
during the option period, pay or contribute something towards
outgoings (council rates, water rates,
land tax and the like)?
If the developer wants to exercise rights of
access during the option period, what
limitations are to be imposed (particularly having
regard to the nature of activities that will continue to be
conducted on and from the property during the option period)?
If a development consent is being sought, do
you wish to view it, to ensure that what was represented to you
complies with what is being lodged? Do you require periodic
progress reports from the developer?
Do you agree to a caveat being lodged under the
option, with you being given the right under an
irrevocable power of attorney to withdraw the caveat if the option
is not exercised?
If any preliminary works such as site clearing
are required to be undertaken, what conditions do you wish to
impose? (e.g. notice before works are done, restrictions on access
and when works can be done; need for insurances)
Do you want the right to remove items from the
property when you elect to do so, once the option is
Reaching agreement on commercial details will make the deal go
Considering these matters will make sure that the option
negotiations fully address the issues and concerns of all parties
and will allow the documentation to proceed promptly.
Many retail leases include a covenant to trade, requiring the tenant to open the premises for trade during certain hours.
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