Options are uncommon in residential conveyancing transactions. An option refers to a right given to a prospective buyer to allow him insist that the seller sell the property only to him provided he buys it within a specified period. Although the buyer is not obliged to buy, the seller is obliged to sell.
It is important that a time limit is set to enforce an option on the seller. However, since April 2010, there is no need to set a maximum period, but it is common to set short periods as it is unreasonable to expect the seller to hold the property for long.
All normal requirements of a valid contract (offer, acceptance, consideration, etc.) should be complied with. There is no limit on the consideration- it can either be nominal or can be dispensed with. It is common for a seller to commit himself to an option only when the consideration is very high. It is also important that the option will have to reveal how the cost of the land was decided, if the buyer exercises the option. When the option is set for a short period, the consideration is usually a fixed price. But if it is for a longer period of time, other factors such as inflation must be considered before deciding the purchase price, and hence a new price is to be set. In such cases, the requirements of certainty should be considered and hence a formula to determine the price should be mentioned (if the parties are unable to reach an agreement on the purchase price). It is thus common to appoint a valuer, whose decision is set as final. Sometimes the buyer may wish that the price for the option is to be set-off against the purchase price; this will have to be done expressly.
Besides normal rules and regulations, options also incur provisions under Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989. Thus the contract should be in writing, should include all terms and conditions that were mutually agreed upon, and signed by all parties concerned. However, the option does not need the signature of both parties.
The contract comes into existence, when the option is exercised. Hence, it is important that the terms of the sale contract are considered in a manner that is usual with all contracts. Sometimes an open contract is created. This is almost always not to the satisfaction of the buyer and the seller. Thus, it is important that option agreements include details on how the title is to be deduced; incumbrances that are sold on the land are subject to, special conditions etc. Thus, everything is done in the same way as a standard sale contract.
Protection of the Option
To ensure that the option is protected even against the subsequent owner of the property, it is important that it is registered.
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