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PURCHASE LEASE OPTION EXPLAINED

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.

Get in touch today for a FREE no obligation chat with a solicitor on 02477 981545 Email us or complete the online contact form HERE >

What is an Option Agreement?

As a property developer, you may have identified an asset such as a piece of land or property, which could be residential or commercial, where significant value can be added. Investors will often collaborate with owners, by adding value and then 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.

 

frequently asked questions about Purchase Lease Options

VIEW NOW> 10 more bite-sized Purchase Lease Option videos

What is a Purchase Lease Option?

A Purchase Lease Option (or 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.

  1. 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.
  2. Lease: Sets out how the property will be used, managed and outlines the parties’ responsibilities.
  3. 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:

  1. The purchase price that will be paid if you buy the property later on.
  2. The length of the agreement, after which if you have not exercised the option to buy, the property will be handed back.
  3. The monthly payments that will be paid to the owner, for example, to cover the mortgage.
  4. 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.

There are several templates that have been doing the rounds which are not fit for purpose becuase they are not tailored to the parties requirements or they can be drafted in such as way that they are very biased. This only become apparent, when things go wrong.

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. 
  • How quickly the parties can provide the information need to start drafting the Option Agreement.
  • 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. It is so important that they understand Purchase Lease Options as very fes Solicitors do them.

If the terms are already agreed and your lawyer has all other relevant information, then the documents should be drafted within a week or so. If searches are required (which we would recommend if you are serious about buying), this can cause some delay. Alternatively, these can be obtained at a later date.

Once drafted they are sent to the owners solicitors to take instructions on the draft Purchase Lease Option documens. Some amendmnenst are usually made between the property owner and the buyer, after which the contracts are signed and a restriction is usually filed with HM Land Registry, if done properly.  

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

Purchase Lease Option explained by Kumari Hart Solicitors

How Much Does a Purchase Lease Option Cost?

Charges vary from firm to firm. We like to be transparent about the costs involved. If we are acting for the seller and are advising on the documents drafted by the buyer, our costs will be £500 + VAT.

If we are acting for the Buyer, so long as it is not complicated, we charge from £750 + VAT for the option agreement and £250 + VAT for the Management Agreement.

If the Option Agreement is complicated the cost could increase up to a maximum of £1250 + VAT.

In addition, if needed, there will be fixed charges for searches (detailed below) which will usually be the responsibility of the buyer:

 

Description  Cost  VAT (20%) 

Optional

Mandatory 

Land Registry Fee (to file restriction) 

 

£40.00 

 

No  Mandatory 
Land Registry Search Fee (per title) 

 

£7.00 

 

No  Mandatory 
ID check  £4.00  £0.80  Mandatory 
Bank Transfer Charge 

 

£25.00  No  Mandatory 
Local Search, Drainage Search, Environmental Search  £167.67 

 

£32.33 

 

Optional 
Chancel Insurance  £15.33 

 

£3.07 

 

Optional 
Coal Search  £33.00 

 

£6.60 

 

Optional 
HS2 Search  £25.00 

 

£5.00 

 

Optional 
Bankruptcy Search  £3.95 

 

£0.39 

 

Optional 

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-6pm Monday – Thursday and 8am – 5pm Friday.

Make a FREE initial Purchase Lease Option enquiry

Please get in touch for a FREE no obligation chat on 02477 981545 or email us or complete the online contact form.

Make An Enquiry





    Why Choose Us?

    FREE INITIAL CONSULTATIONS Talk to us without any obligation. CONTACT NOW>

    FLEXIBLE OPENING TIMES – Open 8am – 6pm Monday-Thursday & 9am-5pm Friday

    NATIONWIDE REACH – Based in the Midlands, Nationwide coverage. Happy to use Zoom, Skype or Team

    VERY COMPETITIVELY PRICED Including fixed fees for your peace of mind

    Purchase Lease Options Videos

    Watch these individual videos to find out the answers to questions we get about Purchase Lease Options.

    If you would prefer to read about them instead then click HERE>

    FAQ's on Purchase Lease Options

    Purchase Lease Options

    This video answers common questions we get asked about Purchase Lease Options. We want to settle your concerns and help you seal that property deal!

    How much does a plo cost?

    Purchase Lease Options

    Find out here all about our fixed legal costs for Purchase Lease Options & how long they take to draft so that you can seal that property deal.

    What Happens if the Owner Goes Bankrupt?

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    The property owner's bankruptcy is likely to bring the Purchase Lease Option to an end. Watch this video to find out why, and how you can mitigate that risk.

    What Happens if the Owner Dies?

    Purchase Lease Options

    This video answers common questions we get asked about Purchase Lease Options. We want to settle your concerns and help you seal that property deal!

    What are the benefits to the owner?

    Purchase Lease Options

    Here we explain some of the benefits to the owner of a property in entering into a Purchase Lease Option (so long as it is done properly)!

    Why a mortgage Lender's Consent is essential

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    Consent of the lender is needed to enter into a Purchase Lease Options. Watch this video to find out why obtaining consent is so important.

    Is Stamp Duty Payable on a Purchase Lease Option?

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    Your liability for SDLT is not straightforward when entering into a Purchase Lease Option. This video explains all you need to know.

    See How we work on purchase lease options?

    Purchase Lease Options

    In this short video we explain what you can expect from us when reviewing or drafting Purchase lease Options. Click here to find out more.

    What documents are included & why?

    Purchase Lease Options

    In this short video, we explain what documents you will get as part of a Purchase Lease Option and what they do. Watch now to find out more.

    Why are searches important in a PLO

    Purchase Lease Options

    Why you should consider getting searches as part of your due diligence when entering into a Purchase Lease Option. Watch now to find out.

    Why does the Owner need legal representation?

    Purchase Lease Options

    This video explains why it's important that the owner of the property obtains independent legal advice and why we will refuse to act if not.

    Why Choose Us?

    FREE INITIAL CONSULTATIONS Talk to us without any obligation. CONTACT NOW>

    FLEXIBLE OPENING TIMES – Open 8am – 6pm Monday-Thursday & 9am-5pm Friday

    NATIONWIDE REACH – Based in the Midlands, Nationwide coverage. Happy to use Zoom, Skype or Team

    VERY COMPETITIVELY PRICED Including fixed fees for your peace of mind