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Conditional Contract or Optional Agreement – which is best?

Buying or selling property often involves either a conditional contract or an option agreement. Is there any difference between the two and if so, which is best?

Conditional contract

Under this arrangement, the sale or purchase of property is conditional upon one or more things happening. For example, it may be a condition of the sale that satisfactory planning permission is granted.

Once the defined condition of sale/purchase has been met, the buyer and seller are both committed to proceed with the transaction.

Option agreement

An option agreement grants the buyer the option of buying the property if they wish. The buyer is under no obligation to buy at any stage, whereas the seller is committed to sell, should the buyer decide to proceed.

It may seem from this that an option agreement only really benefits the buyer.

However, a conditional contract often contains a fairly loose definition of the condition being relied on. For example, with a ‘satisfactory planning permission’ condition – ‘satisfactory’ may be defined in such a way that it ends up being at the buyer’s absolute discretion. It can be quite difficult to define a more objective clause and you could end up with either a vague reference or a long list of conditions that the buyer would have to accept.

You could end up spending far too much time arguing about the terms of a contact when other more important issues need to be addressed.

Timescales

Consider the length of time covered by either the conditional contract or option agreement. It would be wise to focus on how long the buyer can tie up the property while they decide what to do.

Does the agreement allow for an extension to cover such as a planning appeal or judicial review, if so, for how long?

Fees payable

The next thing to consider is fees. Is a non-refundable deposit or option fee being paid? Is the buyer liable for the surveyor and legal fees? The seller may end up walking away from the deal, leaving the seller out-of-pocket if they are left with bills to pay.

Acceptable delays

Does the agreement make clear the obligation on the buyer as regards appropriate timescales? If it is not appropriate to submit a planning application immediately for example, the agreement needs to reflect this.

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