If you’re about to get into an option contract for the first time it’s important to understand what you are getting yourself into contractually.
So can an option contract be revoked on a property? The offeror of an option contact on property cannot revoke the offer, as they’ve entered into a legally binding contract for an agreed period of time where consideration is paid. The offeree will remain under an obligation to sell to the offeror throughout the period of the option contract.
What makes an option contract irrevocable?
Contract law in the UK, the USA and Australia follow the same rules when it comes to a legally binding contract. What makes each contract legally binding is consideration or a payment of money. The same is true of option contracts, where the minimum consideration is £1 or $1.
Why would a property owner sell their home on an option contract?
You may be wondering why someone would someone agree to be bound to sell a property for just £1. There are many reasons why a property owner would enter into an option agreement. But not all option contracts have a consideration of just £1. These include:
- An option to buy – A simple option to buy is used by developers on land or on properties. They provide for an exclusive right to buy whilst the developer explores development opportunities. The seller will benefit if the developer obtains planning permission. If they do, it’s likely that any uplift in value would be agreed upfront in the option contract.
- A lease option – A lease option is where the option contract is combined with a lease agreement. The seller of the property benefits by receiving a portion of their equity upfront (i.e. the option fee). They then receive a rent each month for the duration of the lease period. At the end of the option contract period, or at some point during this period, the owner will receive the balance of what was agreed to be paid for the property at the outset of the agreement.
- An assisted sale – An assisted sale is a contract that allows the offeror of the option agreement to share the profits of an uplift in the value of the property when it’s sold to a third party. Often times an assisted sale is used for the offeror to enhance the property in some way. For assisted sales to work the offeree puts up the property on an option contract. It is the offeror that puts up the cost of refurbishment.
Video about whether an option contract can be revoked when buying property
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