Option for Tenant to Purchase Freehold – Price Based on Market Value

Option Agreement for Commercial Landlord & Tenant (Price to be Determined)

PROP.MAN.102

This Option Agreement for Commercial Landlord and Tenant (Price to be Determined) can be used to grant a tenant an option to purchase the freehold reversion to its lease. The agreement can be entered into when the lease is granted or at a later date.

The option can only be exercised while the lease is subsisting. It may only be exercised in relation to the whole of the land described in the agreement (not part or parts of it).

In this template, the price is to be agreed (or determined by an expert) based on the market value of the property when the option is exercised. We have an alternative template where the price is fixed from the outset.

The grant of an option is not a straightforward transaction. Landlords and tenants should take legal advice before entering into such an agreement.

Clause 1 contains the grant of the Option for the “Option Period”. An “Option Fee” may be payable.

Clause 2 sets out the mechanism for exercise of the option. The Standard Commercial Property Conditions (Third Edition) are incorporated in the Agreement. These Conditions are widely used in Commercial Property transactions (and are similar to the Standard Conditions of Sale used for residential conveyancing). A copy of the Standard Conditions is available from the Oyez legal stationers website. Unfortunately we are not able to supply the Standard Conditions.

Clause 3 covers agreement or expert determination of the Price.

Clause 4 deals with the landlord’s legal title to the property.

Clause 5 restricts the landlord’s ability to deal with the property (e.g. by selling it or granting leases) during the Option Period.

Clause 6 covers completion of the sale and purchase of the property.

Clause 7 deals with notices to be entered on the registered title of the property at the Land Registry.

Clauses 8 and 9 cover VAT and other standard legal matters.

The agreement needs to be signed by each party at the end. The landlord and tenant may sign the same copy or one copy each.

Optional phrases / clauses are enclosed in square brackets. These should be read carefully and selected so as to be compatible with one another. Unused options should be removed from the document.

This document is in open format. Either enter the requisite details in the highlighted fields or adjust the wording to suit your purposes.

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