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Option to Purchase - Deal Structure

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  • Option to Purchase - Deal Structure

    Hello all,

    I have a buyer interested in purchasing a commercial property from me for development. I am seeking advice and critique on an 'option to purchase' structure I am putting together.

    While very interested in the property, the buyer is unable to confirm the purchase for at least 3 years, given that their wider $1bn+ project (which this property would be one part of) will not get the green light until then. The challenge for the seller is; they need to have all 'ducks in a row', including having full development permissions, so that as soon as the project gets the go-ahead, construction can commence on this property. As the seller, if I want to make a deal work with this buyer, we need to find a logical solution. Obviously, I will not alienate my property for over 3 years while missing other opportunities, unless I am compensated for doing so.

    Please note that the $ figures are 'dummy' figures, but the % figures and dates are correct.


    Structure:
    Option to purchase
    Purchase Price $10,000,000
    Option Fee $600,000
    Balance Payment $9,400,000

    Payments:
    Payment Payment Date Value
    Option Fee P1 On signature $200,000
    Option Fee P2 30/06/2024 $200,000
    Option Fee P3 30/06/2025 $200,000
    Balance Payment 30/06/2026 $9,400,000

    Details:
    • The Option Fee (6%) is non-refundable, so even if the sale does not proceed, the entire 6% remains payable to the seller.
    • The seller would retain the right to lease the property to tenants during the option period, thus generating income from rent and from the Option Fee.
    • The buyer would have the exclusive right to purchase the property until 30/06/2026. At this point, they would need to proceed with the sale, or forfeit the right.

    ---

    I would appreciate feedback on any aspects of this structure, or suggestions you may have on alternative ways to handle this.

    Thank you.




  • #2
    Hi Seller127,

    Just see your post. How do you do your due diligence to be satisfied the buyer is good for the money? That is the initial $600K?

    I’m guessing the buyer may also be a property speculator who can on-sell the property at a profit before time is up and settlement occurs with you.

    Is this a likely scenario you’re prepared for?

    regards

    Donna

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