Options are versatile and powerful legal instruments which are changing the way residential property is bought, held and sold in the UK.

Put simply, options are written agreements that give the holder choice or freedom. Depending on the wording in the document, the owner gives exclusive freedom to buy, use or sell the property, or a combination of these freedoms. If the buyer chooses to buy whilst the option is in place, the seller must sell. That is the essence of an option.

There are six essential ingredients of Option Agreements:

1.) willing seller;
2.) written document;
3.) specified period of time;
4.) option fee;
5.) purchase price; and
6.) willing buyer.

Property options fall broadly into three categories: purchase option; lease options, and double (or sandwich) lease options. All are potentially useful to landlords.

A purchase option is often short-term and grants the holder the freedom to buy the property at an agreed price within a specified period of time.

A lease option is a purchase option with the added freedom for the holder to lease or use the property during the option period.

A property owner may grant a lease option to a tenant buyer, (a tenant who also has an option to buy), so allowing him or her time to save a deposit, arrange finance, add value or wait for the property to appreciate. The tenant buyer can choose the best time to 'exercise the option'. Serving notice in this way obligates him or her to complete the purchase, usually with a traditional mortgage. This is known as 'rent to own'.

A double lease option amounts to two lease option agreements running at the same time. The property owner grants an investor a lease option and the investor grants a second option to a tenant buyer. This effectively means the investor can control property and even sell it without owning it.

Instead of increasing his or her personal debt and liability, option holders who take control of property before it is bought will simply make a regular payment to the seller or pay the mortgage direct on the owner's behalf, effectively taking over the existing finance.

Investors can have the satisfaction of helping those in need; either those who need to be free of a property which has now become a liability due to relocation, relationship breakdown and other pressing reasons; or those who are forced to make new housing arrangements because they cannot maintain mortgage repayments themselves.

Options are not without risk - but the risk is generally limited to the option fee paid and any costs incurred during the option period. In many cases options can create positive cash flow, since the monthly payments to the seller or mortgage provider are usually lower than payments taken as rent. If property prices increase, the option holder stands to benefit substantially.