Landowners Beware: Option Agreements May Leave You with Very Few Options
On Wednesday, October 4, 2017, Foxconn Technology Group (“Foxconn”) announced it will establish manufacturing facilities in the Village of Mount Pleasant, Racine County, Wisconsin. Foxconn indicated the new industrial complex could employ up to 13,000 people. The facility will sprawl approximately 20 million square feet and will require thousands of acres for its construction.
Reports have surfaced that real estate brokers have identified over 2,000 acres of real estate in Mount Pleasant that will be vital and central to the development of the new Foxconn facilities. Some brokers have begun approaching landowners in those areas, seeking to make a deal. Specifically, Mount Pleasant landowners have purportedly been made offers by brokers to purchase their property for $50,000 per acre. This likely comes as an attractive offer to most Mount Pleasant landowners, as the same land has generally been sold for less than $8,000 per acre throughout the past year.
Despite the seemingly astronomical payday at closing, such offers likely come with strings attached. For instance, many of these offers to purchase are probably coming in the form of an option to purchase (an “Option”). Option agreements are complex, and can often cause severe headaches for parties blindly accepting the Option’s terms. Parties should be aware that an Option is merely that: it gives the party making the offer (the “Optionor”) the option to exercise a right (in this case, the right to purchase property) at some point in the future. It is not a promise that the Optionor will actually exercise that right. Further, many real estate Options give the Optionor the right to record an interest in the property at issue once the Option is executed. This means the owners of the real estate are restricted in their ability to dispose of, transfer, develop, or make other uses of their property until that Option terminates. In short, for a very small fee, the Optionor could tie up a landowner’s property, potentially for years, and at the end of the day, decide not to exercise its option to purchase the property. Landowners may find themselves high and dry and without that big payday.
Before entering into an Option, it is important for parties to clearly comprehend the terms that they’re agreeing to, and to have a good exit strategy. Without a sophisticated approach and understanding of the deal, landowners may ironically find themselves with very few options.