Call options—exercising the option
Call options—exercising the option

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

  • Call options—exercising the option
  • Time limits and the rule against perpetuities
  • Options granted before 16 July 1964 — the common law rule
  • Options granted on or after 16 July 1964 and before 6 April 2010 — the effect of PAA 1964
  • Pre-conditions

Option agreements are strictly construed and the option may be lost if the option holder does not exercise it correctly.

An option agreement is a contract for sale and must comply with the requirements in section 2 of the Law of Property (Miscellaneous Provisions) Act 1989. This means that it must:

  1. be in writing

  2. contain or incorporate all of the terms expressly agreed by the parties, and

  3. be signed by or on behalf of the parties

The trigger notice, however, is simply the activation of the option and so is not a contract for sale itself. Consequently, the trigger notice does not need to be signed by both parties.

Time limits and the rule against perpetuities

Time limits

Where the option agreement specifies time limits for the service of the trigger notice, time is of the essence.

The option will usually specify that the grantee must exercise it within a specified period of time. If the option is not exercised within that time then it will lapse. A notice of an intention to exercise the option given without authority within the option period cannot be made effective by ratification after the end of that period. The option holder must therefore ensure that, if the buyer is to obtain planning permission before exercising the option, the period allows sufficient time for planning applications