Put and Call Options8 December 2021 in Property and Conveyancing Law
Put and Call Options
Put and call options are agreements that allow people to purchase or sell property at some point in the future. A property lawyer can assist you in drafting put and call option agreements in order to ensure they are legally effective and minimise the potential for a dispute between parties to the agreement.
Organising put and call option agreements can be confusing and stressful, a property lawyer can help you with this process and alleviate unnecessary stress and confusion. Option agreements also create various legal rights and obligations that a property lawyer can assist you in understanding. Option agreements are commonly used when a someone wants to secure some land or property for future development.
An option agreement is a written agreement that allows people to buy or sell property at some point in the future. It will specify the rights and obligations of the parties to the agreement and outline the period in which the option can be exercised. There are various kinds of options agreements which parties can enter into. A call option is an agreement which affords a party the right to buy some specific property from a seller at some point in the future. A put option is an agreement which affords a party the right to compel a purchaser to buy a specific property at some point in the future. A put and call option is an agreement which affords both parties to the agreement the right to compel the sale or purchase of a specific property at some point in the future. The terms of exercising an option agreement will be specific to that particular agreement and these terms must be adhered to.
What are the benefits of option agreements?
There are various benefits associated with option agreements. One benefit of options agreements is that they provide people with time to consider whether they would like to a buy a property. For example, where a party may benefit from entering into an option agreement where they are unsure whether they will have sufficient finance to purchase a property or whether the development of a property will be approved. Alternatively, putting of the sale of a property may allow a seller the time to find another property to purchase to replace the one being sold. Another benefit of options agreements is that they allow parties to set in stone a price to be paid for property. This prevents the property being purchased or sold in an option agreement being subject to changes to the market price of the property. Options agreements also can be beneficial because they can defer tax obligations such transfer duty and capital gains tax.
Transfers of options to purchase land
An option to purchase land can be transferred if an option holder, for valuable consideration nominated another person to exercise the option or nominated another person as the purchaser or the transferee of the land subject to the options on or before the exercise of the option. The transferee, being the individual who has or obtains the right to exercise the option or purchase the land, is required to pay any duty owed on the land within 3 months of the purchase. For the transfer of options to purchase land, the duty arises when for nomination, when the nomination is made and for novation when the option holder agrees to the novation or relinquishes their rights through another means.
Why BSM Lawyers
Brander Smith McKnight’s expert conveyancing lawyers are experienced property and conveyancing lawyers. Our team of conveyancing lawyers can assist you in all legal matters relating to option agreements. We understand the anxiety and stress that property matters can cause. Our property and conveyancing lawyers work diligently to alleviate this stress and anxiety by keeping you well informed throughout your property matter and explaining legal concepts and processes to you in clear and simple english. For more information on Brander Smith McKnight’s services, you can contact us on 02 8539 7475.
Should I have a lawyer draft my option agreement?
You may want to consider having a lawyer draft your option agreement.
This is because a lawyer can ensure the agreement is drafted correctly and unambiguously in order to avoid complications between the agreement’s parties.
A lawyer can also follow your instructions and consider your circumstances when drafting an option agreement in order to create an option agreement that is sufficiently tailored to your situation.
For more information on how Brander Smith McKnight’s expert property lawyers can assist you with drafting option agreements, please contact us on 02 8539 7475.
Does an option agreement include the contract for the sale of the property?
Yes, an option agreement will annex the contract for the sale of the property. You may want to consider having this contract reviewed by a lawyer so that your rights and obligations under the contract can be explained to you.
Can a third-party exercise rights under an option agreement?
An option agreement can provide third parties with the power to exercise rights under an option agreement. An option agreement can allow third parties to participate in property transactions as if they were the purchaser or they can act on the purchaser’s behalf in the transaction.
Should I have a lawyer review my option agreement?
You may want to consider having a lawyer review your option agreement prior to signing it. A lawyer can assist you in understanding the rights and obligations that arise because of the agreement. In addition, a lawyer can help you negotiate the terms of an option agreement in order to protect your interests and ensure that the agreement is effective.
What is an option period?
In simple terms, an option period is the agreed period of time in which a party to an option agreement can exercise an option.
What happens if I do not exercise my option during the option period?
If neither party to an option agreement exercises their rights to buy or sell the relevant property within the option period, the option becomes invalid.
How can I resolve a dispute over an option agreement?
If a dispute arises out of an option agreement, it can be resolved in or outside of court.
Before commencing legal proceedings to resolve a dispute regarding an option agreement you should consider whether resolving the dispute outside of court.
Brander Smith McKnight’s lawyers can assist you with resolving a dispute outside of court through alternative dispute resolution. Resolving a dispute arising from a breach of contract outside of court can save both parties money and time.
For more information on how Brander Smith McKnight can assist you in resolving a dispute arising from an option agreement, please contact us on 02 8539 7475.
What is an option fee?
An option fee is a non-refundable fee that is paid after parties enter into an option agreement, there is no set price for option fees. A call option fee may generally be between 5%-10% of the total purchase price, while a put option fee is generally nominal (e.g. $1).
Is stamp duty payable on a put or call option purchase?
No stamp duty is payable when the option is granted, regardless if it is a call or a put and call option. Stamp duty is payable when the option is exercised, being required within three months of the options exercised date.
Stamp duty is also payable when the grantee transfers the option through either nominating or assigning the option to someone else. In these cases the stamp duty is payable by the nominee or the assignee on the nomination, novation or assignment date. If the option is a put and call option, stamp duty is also payable by the grantee on the purchase price. These duties are due within three months.
Can a contract be rescinded after an option has been exercised?
It was recently seen in the New South Wales Supreme Court that after a put option was exercised on a residential property, the purchaser is entitled to rescind during the cooling off period. The purchaser was also granted a refund of the call option fee, as long as the purchaser had not waived their right to the cooling off period through s66W or through another means.
It was noted that this right of rescission does not apply to a contract for a residential property which is created through the exercising of an option to purchase.
Are there any exemptions to the call option assignment duty?
Under the Duties Act 1997 (NSW) s111(1)(c) if the grantee who becomes the assignor or nominator is a licenced home builder, they may be exempt under s111(1)(c).
That is, if the call option is assigned by an individual who is authorised to be contracted to do residential building work under the home building act 1989 (NSW), who is building or has built residential premises on the land for the purposes of sale, or has an agreement with the individual who the call option is assigned to build residential premises on the land, s111(1)(c) may apply.
Under the Duties Act 1997 (NSW) s111(1)(d) if the call option is transferred or assigned by a corporation that is a member of a group of corporations to another corporation that is a member of the same group. They may be exempt under s111(1)(d).
How can a call option or a put and call option be used?
Call options or put and call options can be used in a number of ways, such as:
A developer may identify a number of suburban blocks of land which they may be able to obtain development approval for, so they place a call option upon the blocks at 20% higher than the current market value for the blocks of land, paying the option fee upfront for the option. If the developer is able to obtain the development approval to develop the land (e.g apartments or townhouses), they may exercise their call options.
A renovator may identify a property which had been left in poor condition, place an option slightly above market value (e.g. 5%) for 12 months and pay a 5% to 10% option fee. This grants the renovator to immediate access to the property to renovate and improve the condition which the property had been left in. The option may then be sold on at a profit.
A developer may identify old strata apartments or offices which have potential to be granted development approval over. The developer can place a call option over the property for a significant percentage (e.g 40%) above the current market value and pay the option fee upfront. If the developer is able to obtain the development approval they can exercise the option and develop the property accordingly.