This new clause is usually known as a "Freezer Clause" or "Market Failure Clause". The clause states that in the event of a significant market downturn certain provisions of the Option Agreement which would otherwise lead to the termination of the agreement in the event that the developer did not purchase the site will be postponed (or frozen) for a certain period of time (usually two years).
Where would a Freezer Clause apply?
The two situations where a freezer clause would be useful for a developer are:-
(a) the developer has obtained planning permission for residential development on the Option site but there is a market downturn before they exercise the Option. The Option Agreement may have provisions stating that the landowner can terminate if the developer has not exercised the Option within a certain period after planning permission has been obtained, or we may simply be near the expiry date of the Option. The freezer clause would operate to extend the period within which the developer had to exercise the Option (so, if there was only six months left in the Option Period then the freezer clause would operate to extend this to a maximum of two years and six months); and
(b) the developer has exercised the Option and is purchasing the site in tranches at the time of the market downturn and the Option Agreement provides that the agreement will come to an end in the event that further tranches are not acquired within a certain period (so, for example, it may say that a further five developable acres has to be acquired every 18 months). In this instance, the freezer clause would postpone the 18 month period (so, if the freezer clause was to operate for two years then it could postpone the 18 month period to a maximum of 42 months).
In either situation the developer will have invested significant time and money in promoting the site through the local plan process, site investigation costs, planning application fees (and possibly appeal costs) in obtaining detailed planning permission, as well as the costs of contractors and consultants. The developer will not wish to lose the site but if there were significant downturn in the market it could, for a period of time make the site unviable (particularly in the light of a high minimum price). Without the freezer clause, the developer would need to make the difficult decision as to whether to purchase the site (or continue to purchase tranches) despite the market downturn or whether to potentially lose a site that they had invested significant time and money in. The freezer clause operates to postpone this difficult decision and, hopefully, at the end of a two year period the market will be back on track and the developer will be able to proceed with the purchase.
Arguably the freezer clause is also for the benefit of the landowner - in the vast majority of Option Agreements the purchase price is calculated on the basis of the market value of the site- so there is a clear benefit to the landowner not to sell at the bottom of the market. (The principle is the same with Promotion Agreements, where the landowner will not wish to sell at the bottom of the market).
Having said that, every freezer clause we have entered into has been purely at the instance of the developer (meaning that the developer has the option whether to use the freezer clause to extend the relevant periods or whether to dis-apply the freezer clause and purchase despite the market downturn). I think this has to be correct, as it is important for the developer to ensure that they are able to ensure continuity of sales on the site or to the purchase the site if it is in their business plan, even if there is a market downturn.
Generally we have found landowners in favour of the market failure clause as they are tying up a long term Option Agreement or Promotion Agreement, so they know that they are in for the long haul with the developer and are relatively comfortable with an extension as a result of an issue which is outwith the control of the developer.