PROPERTY Plan Before You Purchase
Charlotte Harris, Senior Associate from Yorkshire law firm Keebles LLP, offers legal advice for care home operators purchasing land for the construction of a new care home and focuses on the types of agreement to consider when buying a development site.
If you are looking to expand your care home business but cannot find a suitable existing building, you may be considering the purchase of a plot of land to construct one from scratch.
There are many issues to consider when
buying land for development, including ways to access the site, drainage, boundaries, planning consent, collateral warranties and restrictive covenants which would prohibit or hinder the proposed development.
An option to purchase, also known as a call option, is an agreement in which a landowner would grant you the right to purchase land within a specified timeframe. During this period, you can decide whether or not you want to commit to buying the land or property.
If you do decide to purchase, you can 'call' on the landowner to proceed with the sale. If, however, you decide that you do not want to buy the land, you would not be obliged to do so at any point, and the landowner would then be free to sell it to another party at the end of the agreed timeframe.
The main advantage of taking a call option is that you will have complete discretion over whether or not to buy the land. During the option period, you are also securing the land from your competitors.
An option agreement is registrable at the Land Registry, providing protection if the landowner sells the land to a third party.
Another type of agreement is a pre-emption agreement, where the landowner has to offer to sell you the property within a specified timeframe before they are able to sell it to anyone else. A right of pre-emption is also called a right of first refusal because it requires the landowner to give first refusal to the owner of the pre-emption right.
A right of pre-emption would only arise when a landowner decides to sell the land during the agreed pre-emption period. You would be unable to call upon the landowner to sell. If the landowner does not want to sell during the pre-emption period, the pre-emption right never becomes exercisable. This is the fundamental difference to an option agreement.
The benefit of a pre-emption agreement is that it gives some degree of advantage over the market in relation to land that you may particularly want.
A conditional contract is similar in that you would not be bound to purchase a piece of land until certain conditions are satisfied. Typically, such a condition might be you obtaining satisfactory planning permission for your proposed development of the land. Once
"There are many issues to
planning permission is obtained, then the purchase of the land will proceed on the terms set out in the conditional contract. If it is not obtained, then you would not be obliged to proceed with buying the land.
consider when buying land for development, including, access, boundaries and restrictive covenants."
Care must be given when defining the conditions of such an agreement, otherwise you might find yourself lumbered with a property and planning permission which would make either the construction or the operation of the new care home economically unviable or impracticable.
In the case of all these agreements and depending on the circumstances, the purchase price might be fixed on exchange of contracts, or the agreement might contain provisions for the parties to agree the open market price at the time of completion (to be determined by a surveyor if it cannot be agreed between the parties).
Each of the agreements are advantageous to a developer as they both provide a degree of flexibility when considering the purchase of a plot of land.
The important distinction is that, under an option to purchase, you would have an absolute discretion as to whether to go ahead with buying the land, whereas under a conditional contract, you would be bound to complete a purchase once the conditions of the contract are met.
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