Q: We are keen to purchase the next-door premises to expand our manufacturing facility but cannot currently commit to further borrowing. The owner of the premises has stated he would consider leasing to us now, with an option to purchase later. How would this work and what would happen if we later found we couldn’t or didn’t want to purchase? Could we have a clause in the agreement to that effect?
A: A lease with a purchase option provides you with the right to rent a property but includes an option for you to purchase at a future date upon terms usually set out in the lease. You would, however, be under no obligation to serve said notice.
You would pay rent to the owner monthly for a specified period, along with paying an upfront non-refundable option fee (which may not be substantial) to secure your exclusive right to purchase the property within a specified time frame. If you decided not to proceed with the purchase you would lose the option fee already paid.
Another option would be a CML (Capital Market Loan) agreement whereby part of the monthly rent could be in the form of a CML and those payments would accrue to be offset against the final purchase price.
The lease agreement should state the full CML repayment schedule, the loan duration, interest rates, late payment arrangements and any other terms agreed between you and the current owner. Additional inclusions would be clauses outlining each party’s obligations in respect of maintenance responsibilities and any default provisions. The purchase price of the property and repayment time frame would be agreed at the time of signing the lease, though normally the option can be exercisable at any time during the option period.
Option agreements are legally binding and need to be carefully drafted to avoid pitfalls. You should therefore seek early legal advice from a specialist experienced in company and commercial law.
This question has been answered by Sêra Henderson-Jones, a Chartered Legal Executive with GHP Legal. If you would like to speak to someone about this or any other legal matter, please visit our website www.ghplegal.com and use the contact us form, or call us on: Wrexham 01978 291456, Llangollen 01978 860313, Oswestry 01691 659194
