In brief - Property owners and property developers can have competing interests
As a real estate agent, you can be engaged by a developer or by a group of owners to negotiate options for sites which have development potential.
What are the things that you need to consider when conducting negotiations between the owners and the developer, bearing in mind that they obviously have competing and sometimes conflicting interests?
This article continues the discussion begun in our earlier article, Option agreements from a property developer's perspective.
Questions to consider when negotiating options
The questions you need to consider are the following.
- Are the commercial parameters clearly understood by both parties? These are the nature of the option (whether it is a call option only or a put and call option), fees to be paid, extensions to which the developer is entitled, the price (and any formula for uplift depending on the outcome of development application) and other matters.
- What rights may the developer be looking for during the option period? These can include access, right to market, right to lodge applications and right to carry out preliminary works.
- What concerns do the vendors have, particularly with the identity of the developer and any change in identity?
- What are your fees, on both the option and the contract? Who pays them and when?
- Are the vendors seeking any additional benefits? This will include the right to remove items from the property, being freed from the obligation to clean the property up before settlement (effectively to give "vacant possession"), the right to the benefit of any development applications and accompanying reports if the option does not proceed, and perhaps the right to buy one of the properties resulting from the redevelopment of the site at a discount.
- Are there any particular issues with respect to the site which need special consideration and discussion? For example, if the property is a working farm or if there are tenants on the property, then these issues need to be discussed and thought through and an appropriate commercial resolution reached.
- How does GST affect the option and the contract? This needs to be discussed.
Be aware of the interests of all parties to help them reach a commercial agreement
Being aware of these matters and keeping them in the forefront of your mind when negotiating with the parties will help them reach a commercial agreement more quickly.
It will also show that you have considered the interests of all parties (thereby giving them greater comfort in proceeding) and, ultimately, will lead to a more timely entering into of documents by the parties, as all of the relevant commercial matters affecting their respective positions will have been considered and discussed before proceeding to documentation.
This article has been published by Colin Biggers & Paisley for information and education purposes only and is a general summary of the topic(s) presented. This article is not specific legal or financial advice. Please seek your own legal or financial advice for any questions you may have. All information contained in this article is subject to change. Colin Biggers & Paisley cannot be held responsible for any liability whatsoever, or for any loss howsoever arising from any reliance upon the contents of this article.