PURCHASE LEASE OPTION SOLICITORS
A speedy legal service with fixed fees!
Have you found an Investment property. Need a Purchase Lease Option drafting quickly?
Our in-house lawyers are also property investors themselves and really understand the importance of a speedy legal service when arranging a Purchase Lease Option.
What is an Option Agreement?
As a property developer, you may have identified an asset such as a piece of land or a property where significant value can be added. Investors will often collaborate with owners, by adding value, with a view to buying that asset later on.
This might be done by obtaining a planning gain with a view to developing it afterwards.
By entering into an agreement with the owner of the asset, as the developer, you will get the right to buy the asset off the owner, if planning is approved.
These are called “Option Agreements” or “Options” and have been used in the commercial sector for many years.
The key point is that you have the right to buy the asset, but not the obligation to do so.
This way of controlling an asset is significant because, if for example, the planning gain is not achieved, you do not need to purchase it. The only losses will be the cost of the planning process and associated professional fees. Much cheaper than buying the asset and then failing!
If, however, planning is approved, you will have the right to purchase the asset at the price agreed from the outset. This is sometimes called the “strike price”.
Such agreements are also time-limited. This means that the asset must be purchased by a certain date. This is often referred to as the “long stop date”.
Following negotiations, the main terms of the agreement will be contained in the Heads of Terms, which are then usually passed onto solicitors to draft the agreements.
What is a Purchase Lease Option?
A Purchase Lease Option is just an Option Agreement but coupled with a lease.
This type of agreement is becoming popular with residential property investors. It means that you can control a property and generate income, without the need to pay for the deposit or get a mortgage at the outset, whilst having the right, but not the obligation, to buy it at a later date.
Three Separate Agreements
There are usually 3 separate agreements.
- The Option Agreement: will give you the right to buy the property at a later date if you wish to do & also sets out the purchase cost and payments during the option period.
- Lease: Sets out how the property will be used, managed and outlines the parties’ responsibilities.
- Power of Attorney– This authorises you to sign official documents (regarding property transaction only) should the owners refuse. It can only be used to enforce the terms of the agreement.
Heads of Terms
The parties will usually agree on the Heads of Terms to be included in the Option Agreement. The 4 main terms will be:
- The purchase price that will be paid if you buy the property later on.
- The length of the agreement, after which if you have not exercised the option to buy, the property will be handed back.
- The monthly payments that will be paid to the owner, for example, to cover the mortgage.
- Option Fee which is the “consideration” the buyer gives to the seller on exchange of contracts. This can be as little as £1
A notification is usually registered at the Land Registry against the owner’s title to make sure that the property is not sold without the property investor knowing.
Why Do I Need a Solicitor to Draft a Purchase Lease Option?
These types of agreements have been challenged in court. This could happen for example if the property increases significantly in value such that when you wish to exercise the option the seller no longer wants to sell.
For that reason alone, it is essential that each party to the agreement takes independent legal advice. If so, a court is much less likely to conclude that the seller did not know what they were getting into.
How long does it take to produce a Purchase Lease Option?
This depends on a few different factors such as :-
- Searches. If these are needed (we recommend them) then local searches can take up to 5 weeks or longer in some cases.
- Negotiations. If everything is agreed then great. If not, then negotiations could cause delay.
- How quickly the other side’s lawyers act will have a bearing.
If the terms are already agreed, then the relevant documents should be drafted within a week. If searches are required (which we would recommend if you are serious about buying), once these have been received and reviewed, then subject to no nasty surprises, contracts can be signed. Alternatively, to seal the deal and get contracts signed quickly, they could be signed subject to searches being satisfactory.
Click on the image below to read our blog “The ultimate guide on Purchase Lease Options” which includes a working example, a free download and an explanation of costs
How can we help?
Regardless of whether you need advice on an Option or Purchase Lease Option or need one drafting, we can help you.
We also understand the necessity for speed and we usually act on a fixed fee basis.
As part of our service, we can also provide you, free of charge, with a “Heads of Terms” document and a “Lockout Agreement”. This will help you to carry out your due diligence and agree terms with the owner, before asking us to prepare the Purchase Lease Option documents.
We are also open from 8am to 8pm weekdays and from 9am to midday at the weekends.
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