Option Agreements – Reform Incoming?

The remit of the Scottish Land Commission ("SLandCom") includes work on Housing & Development. A recently published report includes a number of recommendations to the Scottish Government, one of which is a new transparency obligation that would require option agreements and conditional contracts over land to be disclosed on a public register.

This work by the SLandCom comes alongside a project currently being carried out by the Scottish Law Commission ("SlawCom") which is considering potential reform to heritable securities. As outlined below, an option agreement is ordinarily backed by a standard security in favour of the option holder, often a housebuilder, so the proposals for reform could influence the mechanics of future option agreements.

Option agreements – what happens now?

An option agreement is a contract between a landowner and developer giving the developer the option to buy the landowner's property either within a certain period or at a specified point in time.

The property may not have planning status and will often need to be promoted through the development plan process in order to become available for residential development. As a result, the contract usually contains a mechanism to calculate the price at the point the option is exercised, usually connected to the market value at the time of sale.

An option agreement is usually intended to cover one or more development plan cycles, and, once entered into, the developer will invest significant time and money in promoting the site through the planning system. However, an option agreement is only a contract between the landowner and the developer. It is not registered against the title to the land and as such is not enforceable against any third party buyer who is unaware of the option.

A developer will therefore typically look to protect its interest and investment in the land by a standard security which will be registered against the title to the land. This is a charge over the property granted by the landowner in favour of the developer. The purpose of the security is to flag to any potential third party purchaser of the property of the existence of the option agreement and involve the developer in the process of any proposed disposal of the property. This is designed to ensure that the developer always maintains a contractual relationship with whoever the land at the relevant time.

Option agreements – what could happen in future?

The Scottish Law Commission Proposals

The SLawCom is working on a project to reform heritable securities and expects to issue draft legislation in 2025. In its first discussion paper, the SLawCom conceded that the statutory remedies available for the type of security currently used to secure option agreements are of limited benefit. The security holder, i.e. the developer can sell the property, which produces money to compensate them for the failure of the landowner to perform their contractual obligations under the option agreement, but what the developer really wants is the performance of those obligations.

While the SLawCom continues to work on reform of securities which will potentially help protect amongst other things, option agreements, should option agreements be more transparent?

The Scottish Land Commission Proposals

The SLandCom has approached option agreements from the perspective of attempting to increase transparency in relation to decision making affecting land. As seen above, the option agreement is a contract between the landowner and developer which is not visible to third parties; this is why the developer often secures the obligations of the agreement with a standard security to create a "flag" on the title.

As such, a third party who may have an interest in the land might be able to locate a record of the standard security on the Land Register of Scotland, but this would only highlight that a security is in place and not provide any information on the content of either the security or the option agreement being secured.

The SLandCom has proposed that the nature of option agreements lead to a lack of transparency in the housing market, which prevents participation and leads to the market not functioning as effectively as it could. It also suggested that this poses issues for planning authorities, as some sites which are subject to option agreements are not yet in the planning system and planning authorities therefore struggle to identify effective housing pipelines.

The SLandCom therefore proposes that option agreements and conditional contracts relating to land should be registered in a public register maintained by Registers of Scotland. It intends that this proposal would form part of a package of proposals which would encourage more land to come forward for development. The additional outcome highlighted by the SLandCom is that registration of option agreements would also allow community engagement with developers at an earlier stage. The report highlights that conflict between developers and other stakeholders is identified by developers as a drain on time and resources and reducing this could speed up the delivery of new homes.

The Scottish Government has not yet published a response to the SLandCom report, so it is not known at this stage whether the proposed transparency obligations could become part of any future legislation, but there are clear considerations which would need to be given to balancing commercial confidentiality with the desire to increase transparency and creating stakeholder engagement.

If you wish to discuss the impact of these proposals on existing option agreements or the future development potential of your land more generally, please contact your usual Brodies contact.

For more information on option to buy and contract to buy see