Guide
Option agreements: a guide for landowners.
An option agreement gives a developer or promoter the exclusive right, but not the obligation, to buy your land within a set period, usually once it has planning permission. You are paid an option fee up front, the developer pays for the planning work, and if it buys, the price is normally market value less an agreed discount.
In this guide
How an option works, step by step
- Heads of terms. You and the developer agree the main commercial points, with your land agent negotiating. This is where most of the value is won or lost.
- Signing. Solicitors draw up the agreement. The developer pays the option fee and registers its interest on your title at HM Land Registry, usually as a notice, so the land can't be sold free of the option.
- The option period. The developer works on planning at its own cost. You keep the land and usually carry on using it, within limits the agreement sets.
- Planning granted. The developer can serve notice to buy. The price is set by the method in the agreement, usually an independent valuation less the agreed discount.
- Completion or expiry. The sale completes, or the option ends without being exercised. If it ends, you keep the fee and the entry on your title should be removed.
The terms that matter most
The option fee
The payment for granting the option. It is usually yours to keep whatever happens, and is sometimes deducted from the price if the developer buys. Check which applies.
The price and the discount
Most options price the land at market value when the option is exercised, less a discount for the developer's cost and risk. Be clear about who picks the valuer, the valuation date, what the valuer must assume, and how a disagreement is settled.
The minimum price
A floor, usually per acre, below which the developer can't buy. It protects you if the valuation comes in low.
The term and extensions
How long the developer has to get planning and buy. Extensions while an application or appeal is under way are common. Make sure they have a firm end date.
The developer's planning obligations
When it must apply, for what kind of scheme, and what happens if it doesn't. Without dated obligations, an option can simply sit on your land.
Your use of the land meanwhile
Agreements limit what you can do during the option period: selling, leasing, granting rights or changing how the land is used. Check that you can keep farming it, and that existing tenancies and environmental schemes are dealt with.
Assignment, overage and retained land
Check whether the developer can pass the option to another company, and that any new holder takes on every obligation. On land with long-term potential, ask for overage: a further payment if the land later gains a more valuable permission. If you keep land or a home next to the site, protect access, drainage and services.
A worked example
A developer takes an option over a 20-acre field: a £50,000 option fee, a 10-year term with up to two more years while an appeal is live, a 20% discount to market value and a minimum price of £250,000 an acre (£5,000,000 for the field). These are illustrative numbers, not market rates.
| Outcome | Price paid | You receive in total |
|---|---|---|
| Planning granted, valued at £8 million | £6,400,000 (£8m less 20%) | £6,450,000 with the option fee |
| Planning granted, valued at £6 million | £5,000,000: the minimum price, since £6m less 20% is only £4.8m | £5,050,000 with the option fee |
| No planning within 12 years | Nothing: the option lapses | £50,000, and the land is yours, free of the option |
The minimum price is worth £200,000 in the second outcome. Each percentage point of discount is worth about £80,000 at an £8 million valuation, which is why both are worth negotiating hard.
What to push for
| Term | Push for | Watch out for |
|---|---|---|
| Option fee | A meaningful sum that is yours to keep | A fee deducted from the price, so you get less on sale |
| Discount | No larger than the risk justifies | Price formulas that also deduct the developer's costs |
| Minimum price | A per-acre floor you'd accept | No minimum, or one far below today's values |
| Valuation | A clear date, assumptions and a dispute process | The developer choosing the valuer alone |
| Term | A firm long-stop date | Open-ended extensions |
| Planning | Dated milestones and a right to end the option | Vague "reasonable endeavours" with no dates |
The legal basics
An option over land in England and Wales must be in writing, include all the agreed terms and be signed by both parties to be enforceable. It is usually completed as a deed. Once registered against your title, it binds anyone you later sell the land to.
Before you sign
- Have you compared offers from at least two or three developers or promoters?
- Is there a minimum price, and is the valuation method clear?
- Are there dated planning milestones, and a right to end the agreement if they're missed?
- Does the term have a firm end date, including extensions?
- Will the developer contribute to your legal and agent fees?
- Have you taken tax advice on the option fee and the eventual sale?
Use a specialist land agent and solicitor. Since 1 March 2026, RICS members advising on land agreements must follow the RICS professional standard Land agreements for development purposes. Then check the developer itself: our 12 questions to ask work for option holders too, and our comparison with promotion agreements shows the main alternative.
Questions landowners ask
Is the option fee taxable?
Normally yes. The grant of an option is treated as a disposal for capital gains tax, so the fee is usually taxed in the year you receive it. If the option is later exercised, the fee and the sale are treated as one transaction and the earlier tax is adjusted. Take advice on your own position.
Can I keep farming the land during the option?
Usually yes. The agreement sets out what you can and can't do, such as granting new tenancies, selling part of the land or changing its use, and gives the developer access for surveys. Check these limits suit how you farm.
What happens if planning is refused?
The developer may appeal or apply again within the option period. If it doesn't buy before the option ends, the option lapses, you keep the fee, and the entry on your title should be removed.
Can the developer sell the option to someone else?
Only if the agreement allows assignment. If it does, make sure any new holder takes on every obligation in the agreement, including the planning milestones and the minimum price.
This guide is general information, not legal, tax or valuation advice. Every site and every agreement is different, so take advice from qualified professionals on your own situation before you sign anything.
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