Try Before You Buy Property: A Free Call Option?
In recent years there has been a trend towards UHNW clients renting prime London property with the option to acquire at a pre-determined price, otherwise known as "try before you buy". Recent examples of this include the £1m rental of the former Lib Dems HQ near The Houses of Parliament with a pre-agreed option to acquire at £35m.
In the stock market this type of arrangement is called a call option although the buyer of a call option would be required to pay a premium (or deposit) for the right (but not the obligation) to exercise this option and acquire at a pre-determined price.
In the case of try before you buy property, if no option premium can be negotiated with the landlord/vendor then in effect the tenant/would-be buyer is getting a free call option on the property (something a stock market investor would long for).
Imagine a situation whereby the aforementioned property appreciated by 10% over the following 12 months. The tenant would be looking at a £3.5m profit for zero upfront outlay (apart from the rent which he would have paid anyway).
If you'd like to find out more about try before you buy and how we can help you, please get in touch with Ludgrove to arrange a free consultation.
About: Ludgrove is ranked as one of the UK's best property buying agencies by Spears, Prime Resi and E-Private Clients. We find properties for home-owners, investors, family offices and developers. Case studies of our work can be found here.
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