Call options—calculating the price
Call options—calculating the price

The following Property guidance note provides comprehensive and up to date legal information covering:

  • Call options—calculating the price
  • Common traps
  • Deductions
  • What if the purchase price cannot be agreed?

In all but the simplest cases and particularly with development land, a fixed price may not be sufficient and the price will be based on the market value of the land. An option holder may have the right to call for the price to be agreed or determined, to see if the price is right, before deciding whether to proceed (commonly referred to as a ‘look-see’ provision). In any event, if there are errors or omissions in the definition of the price, the developer may have to pay a very different price to the one he was expecting. Attempts to cater for every eventuality may lead to the intention behind the drafting becoming unclear and the document unworkable.

Common traps

Avoid provisions which envisage that the price will be agreed between the parties. Including such provisions may mean that the option agreement is void for uncertainty as an ‘agreement to agree’.

Where the purpose of an option is to allow a developer to ascertain whether planning consent will be available, the developer will want to avoid paying for the land until the necessary planning permission has been obtained, and will not want the land valued on the basis of an assumed permission in case the application is refused.

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