Deferred Payments and Option Agreements: Your Secret Weapon
Magnet Capital looks at two tools that can help property developers secure a promising site when their cash is committed elsewhere or funding is slow to arrive: deferred payments and option agreements.
With a deferred payment, the developer agrees to buy the site but arranges with the seller to pay some or all of the price later. This can give time to put structured funding in place, sell another property or release capital, and push ahead with planning or early works without an immediate large outlay. In some cases payment can be deferred until practical completion, with sales proceeds used to settle the balance.
An option agreement gives the developer the right, but not the obligation, to buy a property at an agreed price within a set period. This effectively reserves the site so others cannot buy it, while the developer works up plans, pursues planning permission and adds value before committing to the purchase. It also locks in the current price and avoids a large upfront payment, reducing risk.
Magnet Capital notes that the way either arrangement is structured can affect funding, so clear terms are important, and says it can help developers decide whether a deferred payment, an option or another structure is the right fit for a particular site.
