Freeths Real Estate Law Blog: Care Homes – The Route to Acquisition
Further to our series of articles discussing the differences between ‘Golden Brick’ and ‘Turnkey’ construction structures from a care operator’s perspective, this article will provide an overview of the three main routes to which a care developer can acquire land for development. This could be either where the developer is developing for an onward market purchaser, or where it intends to develop a home for operation by itself (or connected group company).
Each route has its own pros and cons, and indeed the availability of each route depends on the bargaining strength of the parties.
Route 1: Option Agreements
The most common type of option will involve the developer being granted an option to require the landowner to sell the land to it. The option can usually be exercised by the developer at any time within a fixed option period either at a fixed price or calculated at the point the option is exercised. It is possible to include aspects of conditionality, for example the option can be exercised only after satisfactory planning permission has been obtained for the land.
The key feature of an option agreement is that the developer retains full discretion as to whether to exercise the option and purchase the land. This may be particularly beneficial for developers that need to retain a degree of control in terms of timing (when forming part of a development pipeline) and/or potentially being able to walk away from the transaction if deemed no longer suitable or economically viable. To reflect that greater flexibility, option agreements usually attract a non-refundable option fee paid by the developer.
Option agreements are less favoured by sellers – and are so the least common of our three routes.
Route 2: Conditional Contracts
Conditional contracts are probably the most common way in which developers seek to secure land. Completion of the acquisition is triggered by certain conditions being satisfied within a set timescale. Conditions can include the developer obtaining “satisfactory” planning permission for its development, the landowner undertaking ground remediation works or infrastructure works, to name just a few.
Once the conditions have been satisfied in accordance with the terms/timescales within the contract, the contract will become unconditional and the developer will be required to complete the purchase of the land on the date specified. In the event that the conditions cannot be satisfied within the stipulated timeframe, the parties are free to walk away (and in most situations the deposit be refunded to the buyer). In the circumstances, it is important that particular attention be given to the conditionality provisions in the contract so that developers do not find themselves contractually bound to purchase land with which they are not entirely satisfied, or are unable to complete as result of onerously drafted conditions.
Route 3: Unconditional Contract
The simplest form of agreement for the purchase of land is an unconditional contract. On exchange, the parties simply agree to complete the purchase on the completion date specified in the contract, irrespective of any other factors. However, an unconditional contract will not usually be suitable for a development site unless the land already has the benefit of satisfactory planning permission or if the developer is happy to acquire the land as it is, taking any risk that planning permission cannot be obtained at a later stage and/or that any site remediation or enabling works can take place.
As mentioned at the outset, each route has its own nuances making it more or less suitable to a particular transaction and in some circumstances, the relative bargaining strength of the parties involved may simply dictate which route is used. Look out for our upcoming blogs where we will be delving into each in a more detail. In the meantime, should you need an advice or guidance, please do contact one of the Freeths Real Estate Team or Care Team.
The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.
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