Option to Purchase: A note for sellers in land assembly deals

$1.4M was the selling price of 1942 E 49th Avenue in 2020. This Vancouver property is now back on the market for a cool $2,999,000 – complete with a “Land Assembly Potential” tag. It is being suggested that the buyer is expected to benefit from a future sale to a developer who intends to include the property in a land assembly.

Given the allure of sizeable earnings, if you have a detached home, it seems only logical to consider teaming up with neighbouring property owners or answering a motivated realtor’s call about your property’s potential. But in anticipation of a windfall, or out of fear of being left out of a land assembly deal into which your neighbours may have already entered, do not forget to be diligent throughout the process. Read all documents carefully, and thoroughly understand everything to which you are agreeing.

One of the key things for a seller to remember is that it can take a long time for a land assembly deal to complete for a variety reasons, such as the neighbours not being ready to sell, or the developer running into financial troubles. If you enter into a land assembly deal, it is also likely that you will be contractually bound to not sell your property to another buyer for a lengthy, specified period.

However, you can take advantage of considerable flexibility if the developer gives you an upfront deposit that you do not have to return if the developer backs out of the deal. This is usually accomplished through an option to purchase, which is a legal instrument through which you would grant the developer the exclusive right to purchase your property within a specified period of time, for a specified price, and for a specified deposit. The developer then registers the option to purchase against your property’s title, and releases the deposit to you. If all goes as planned, the developer will purchase the property from you as per the terms of the option to purchase. You get to keep the deposit and the ultimate sale proceeds.

If the developer fails to follow through with the terms of the option to purchase, you will still get to keep the deposit, and subject to any restrictions in the option to purchase, you will have the option to purchase removed from your property’s title. You are then free to list your property for sale. As such, unless you, the seller, do not meet your obligations under the option to purchase, it is highly likely that you will be able to keep the deposit. You may even choose to use the deposit as a down payment to purchase a new property before your current property is sold.

Given that such transactions may be some of the biggest transactions of your life, it is imperative to categorically protect your interests. You must ensure that the option to purchase and any other related documents are drafted carefully, and that abundant scrutiny is employed before signing such a document prepared by another party.

Visit this page to understand the basics of land assemblies. If you have questions, get in touch with us. You will benefit from the wealth of experience that Bell Alliance has from acting on both sides of land assembly deals.