Whilst we usually associate put and call options with property developers, they are becoming very much more mainstream.
They can be an invaluable tool when negotiating with a seller but there are a lot of traps for the inexperienced negotiator and their lawyer.
What are put and call options?
In simple terms it is a contract where one party being the seller agrees to sell a property or sometimes multiple properties if requested by the buyer (call option) and the buyer agrees to buy the same property if requested by the seller (put option).
The call option usually has a finite period for the buyer to exercise the option and once it expires the seller can has the opportunity to make the buyer purchase the property by giving notice in a specific period to exercise the put option.
What are the benefits of using put and call options?
The benefit of using a put and call option rather than entering a normal contract are:
- the ability to delay the obligation of the buyer to pay transfer duty in relation to the property
- the ability to nominate another buyer to buy the property without having to be liable for paying the relevant stamp/revenue duty twice
- the ability to control when the property can be sold is sold to minimise tax obligations such as capital gains tax
What are nomination provisions?
Call options will often have nomination provisions which will allow the buyer to nominate one or more people to be able to exercise the call option.
It is important to note that a third party must have no rights under the put and call option as it will then give rise to a stamp duty issue.
Can you assign a put and call option?
You can assign your rights under a put and call option either on the basis that the seller’s consent is not required or with their consent.
Many sellers will not allow you to assign the right without their agreement. If that is your intention, then you need to ensure that any document that is drafted is done so professionally and can be relied upon.
Other conditions which can be negotiated in relation to a put and call option
There are several other considerations that you should consider incorporating into the put and call option such as:
- Due Diligence provisions
- Time periods for the exercise of the options
- Development Approval requirements
- The ability to lodge a caveat over the property to protect your interests
- How to access to the property during the process before you take over title for various reasons
- Consideration of a joint venture partnership
- The size of any deposit and will it be refundable or not?
- Has the relevant sale contract been correctly drafted and contain all the relevant conditions the parties have agreed upon?
How can FC Lawyers help?
Our expert and experienced property team has acted for developers, sellers and joint venture partners in both large and small projects for over 25 years.
Contact our team for an obligation free discussion about your requirements for put and call options or any other property maters.
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