Following on from Aileen’s last blog, here are a few key points to consider – for developers and landowners – when entering into an option agreement:
- Is the period of the option long enough for the developer to obtain all of the necessary consents et cetera? Options for renewables projects are often for periods of up to 5-10 years.
- Can the option period be extended? This may be necessary for example if the developer has to deal with a planning appeal or if there are grid connection issues.
- Is there an absolute end date (longstop date) when the option will expire? A landowner is unlikely to agree to its land being subject to an option for an indefinite period of time.
- What payments are due to the landowner for entering into the option agreement? Are there any payments due to the landowner at key stages during the option period (for example, on the grant of planning permission)? Is the landowner owed a further payment if the option period is extended?
- What is the developer entitled to do on the land during the option period (for example, monitoring wind conditions, carrying out site surveys, monitoring flora and fauna)? Are these rights broad enough to enable the developer to do all that it has to do during the option period?
- What can/can’t the landowner do with its land during the option period? For example, the landowner is usually prohibited from entering into other leases affecting the land unless with the developer’s consent. Is the landowner reserving adequate rights to enable it to continue its current use? Is the developer comfortable that it will be able to enjoy its own rights under the option?
- Where does environmental liability lie?
- What about planning and planning agreements? Are there provisions in the option dealing with these and with the obligations of the respective parties under the option agreement in these respects?
- Does the option agreement allow the developer to assign the option? Can it opt to take the lease in the name of an SPV?
- The lease to be entered into if the option to take a lease is exercised will be negotiated with the option agreement and attached to the option agreement that is signed by the parties. Will its provisions work for future funders of the development?
- Is the developer protected against for example the sale of the land? Is the developer’s interest secured?
- Is the landowner protected against the impact of the exercise of the rights granted under the option?
Lots of things to think about and these are just some. Best to consider sooner rather than later.
The key terms and issues in relation to the draft lease will be covered in upcoming blogs but if you have any questions in relation to option agreements, please contact your usual Brodies’ property contact or one of the property bloggers (Aileen, Robin, Nicola or me).
On April 19, 2012