Option agreement vs subject to planning vs outright sale

What is the difference between an option, a sale subject to planning and an outright sale?

The difference is when the sale becomes certain and who carries the risk of planning being refused. In an outright sale the deal is fixed at exchange; in a sale subject to planning it becomes binding once permission is granted; in an option the buyer chooses whether to buy, usually once planning is secured.

All three end the same way if they complete: a transfer of part of your title, a new title for the plot, and money in your bank. What changes is how long that takes, how the price is set, and what happens to you and your land if the council says no.

How does an outright sale work?

An outright sale is an unconditional sale of the plot, with or without planning permission, at a price agreed now. Contracts are exchanged and the sale completes on a fixed date, much like selling a house.

Without planning, the buyer is taking the full planning risk, so the price reflects that. With planning already granted, you have taken the risk and paid the costs of the application, and the price should reflect the permission. Overage can be added to an outright sale without planning, so you share in the value if a better permission is granted later.

We buy suitable plots directly, with or without planning, always subject to survey, title and contract.

How does a sale subject to planning work?

A sale subject to planning is a conditional contract: you and the buyer exchange contracts now, the buyer applies for planning permission, and the sale only completes if a satisfactory permission is granted. If permission is refused, the contract ends and you keep your land.

The price is fixed or set by a formula at exchange, so you know what you will receive if planning succeeds. The contract defines what counts as a satisfactory permission, how long the buyer has to apply, whether it can appeal, and a long-stop date after which either side can walk away.

On our subject-to-planning purchases we normally fund the planning application. Any recovery of those costs is agreed in heads of terms before you sign, and if planning is refused you keep your land.

How does an option agreement work?

An option agreement gives the buyer the exclusive right, but not the obligation, to buy your plot within an agreed period, usually once planning permission is secured. You cannot sell the plot to anyone else while the option runs.

The buyer pursues planning during the option period. If permission is granted, the buyer can serve notice to buy, and the sale completes on the agreed terms. The price may be fixed, set by a formula, or based on market value with planning at the time, less agreed costs, often with a minimum price to protect you.

Options are more common on larger sites with longer planning timescales, and for a single garden plot a sale subject to planning is often simpler. Where an option does suit, we cover reasonable legal fees, with the cap agreed in heads of terms.

Where does planning promotion fit in?

Planning promotion is a fourth route that sits between an option and selling on the open market. A promoter seeks planning permission at its own cost and, if it is granted, the plot is then sold, either to the promoter or on the market as agreed, and the promoter’s costs and fee come out of the sale proceeds.

With us there is nothing to pay upfront on planning promotion. Planning costs are recovered from the sale proceeds only if a sale with planning happens, and the amount or cap is set out in heads of terms. We also cover reasonable legal fees on promotion agreements, again with the cap agreed in heads of terms.

Promotion is more usual for bigger sites, such as several neighbours combining gardens, because the work and time involved are similar whatever the size. For a single plot, a sale subject to planning often achieves much the same result more simply.

How do the three routes compare side by side?

The table compares the routes on the points that usually decide the choice. The details of any deal are always set out in the heads of terms and then the contract.

Who carries the planning risk in each route?

In a sale subject to planning or an option the buyer carries the planning risk, while in an outright sale without planning it is priced into the deal you accept now. If you obtain permission yourself before selling, you carry that risk and the cost.

Carrying risk is not just about refusal. Planning applications for garden plots can need surveys, revisions and sometimes an appeal. Under a conditional contract or an option, those costs and delays fall on the buyer, although you still wait. Under an outright sale, they are the buyer’s problem after completion, but you have accepted a price that allowed for them.

How long does each route usually take?

An outright sale is usually the quickest, often a few months from agreeing terms if the title is clean and the lender releases the plot promptly. Sales subject to planning and options take longer because they include the planning process.

Councils in England and Wales have a statutory period of eight weeks to decide most applications for a small number of homes, but preparing the application, extensions of time, discharging conditions and any appeal add to that. If a refusal is appealed, you have up to six months from the decision to lodge the appeal, and the inspector’s decision takes further time. The contract should set out how long the buyer has and what happens at the long-stop date.

What protections should you ask for?

Whatever the route, agree your protections in the heads of terms so they find their way into the contract and the transfer. The most useful are listed below.

• A clear definition of the scheme the buyer may apply for, such as one single-storey home, and your right to see the application before it is submitted.
• A long-stop date, after which the contract or option ends if no permission has been granted.
• Limits on the buyer’s right to appeal, or a requirement to consult you before appealing.
• A minimum price under an option, and a clear method for agreeing market value.
• Covenants in the transfer on height, windows, boundaries and building hours.
• Overage if the buyer later gets permission for more than the agreed scheme.
• Clarity on who pays legal, planning and lender costs, and what happens to those costs if the deal ends.

How does timing affect tax on a garden sale?

Timing can matter for tax, so take advice from a tax adviser before choosing a route. HMRC’s guidance on Private Residence Relief says relief is not available if you dispose of all or part of your garden after you have disposed of your home.

That is relevant to longer routes. If you might move house while an option or conditional contract is running, the plot sale could complete after your house sale, which may change the tax position. Payments such as option fees may also be treated differently from the final price. A tax adviser can look at the specific terms before you sign.

Which route is right for you?

The right route depends on how soon you need the money, how much certainty you want, and how much risk you are willing to leave with the buyer. There is no single best answer.

For example, an owner who plans to move within a year and wants a definite sum might prefer an outright sale, accepting a price that reflects the planning risk. An owner staying put, who would rather wait for a price based on what the plot is worth with permission, might prefer a sale subject to planning. An owner with a larger plot, or several neighbours combining gardens, where planning may take longer, might find an option or planning promotion more suitable.

We are a new brand within the S&K Group and offer all three routes. A free garden plot appraisal, with no cost and no obligation, is the starting point for working out which fits your plot and your plans.