There are many pitfalls that are associated with poorly developed option agreements, and below are just a few of the areas you need to observe. The time remaining before an option expires is allocated to a monetary policy value called the current value. The longer the option expires, the more the current value is built into the option premium. Decommissioning: If your option agreement is a renewable energy system, you must agree to a closure period. Will it be included in the agreement and who will pay? In essence, a purchase option is a form of "land bank." The option agreement prevents the landowner from selling the property while the proponent reviews the viability of the project, thereby reducing the risk and potential costs to the developer. The land is only purchased when it is exercised by the buyer, which is based on a trigger event. Duration: A typical option agreement is three to five years, but it can be extended or extended if a developer`s planning application is underway. Therefore, you should think about the impact that a lengthy planning process can have on your farm plans and whether you are entitled to additional payments if it takes longer than expected. A timetable for the promoter`s commitments should be included so that both parties are clear about what is expected and when. The versatility of the options also means that certain strategies allow you to profit in a static market. For example, if you sell a put option, if you feel that the price of the underlying land remains stable or, at the very least, does not fall dramatically, you can include premium income. As the option is about to expire, the current value of your short put will be eroded and if, as you predicted, the underlying price has not changed much, you will be able to close your short put position with a cheaper premium than the one where you sold to open the position, and you will benefit from a profit.
The most common reason to take an option ashore is to try to secure the building permit before purchase. A field can be worth tens of thousands of pounds as an agricultural servant, but several million with the agreement for residential construction. Someone who can get the building permit might think he is "with a chance," although he may need to spend money on architects and other expenses to accomplish something.