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Use of Options to Purchase Property

Property Law

An Option is a grant of a right to purchase or sell a property at some date in the future. An option agreement is usually in the form of a Deed with the contract for sale attached to it. There are two main types of Options:

A Call Option – is an agreement by which the purchaser (called the “grantee”) is granted the right to buy a property from the vendor. The grantee is at liberty to exercise this right to purchase the property but is not compelled to do so.

A Put Option – is an agreement by which the vendor (called the “grantor”) is granted the right to sell the land to the purchaser. If the grantor exercises the put option, the grantee is compelled to buy the land.

It is only upon the exercise of the Put or Call Option that the contract for sale of land attached to the Option Deed comes into force and becomes binding.

Features of an Option agreement include the following:

  • Option fee – the option fee is the consideration for the option deed which is usually nonrefundable. It is commonly negotiated to also form part of the deposit once the contract for sale comes into force after the purchaser exercises the call option or the vendor exercises the put option.
  • Option period/term – is the call option period within which the purchaser may exercise the right to purchase the land. It may be for the period negotiated between the parties and is commonly for a period 12, 18, 24, months or longer as negotiated. A put option period generally commences on the day after the call option period expires. The put option period is commonly for a period of 14, 21, 28 days or as negotiated.
  • Access to property during the option period- it is common feature of an option, that the purchaser may access the property for the purpose of preparing a development application to lodge with council, the consent of which is provided by the grantor.

In the recent case law of BP7 Pty Ltd v Gavancorp Pty Ltd [2021] NSWSC 265 it was decided that a purchaser could exercise their cooling off rights in respect of the put option and contract for sale of residential land that the vendor had put to the purchaser.

It is prudent for the exercise of a Put Option to be valid in respect of residential land that the vendor obtains from the purchaser a sec 66W certificate waving the cooling off period, in addition to the Sec 66ZF certificate cooling off rights of the purchaser at the time of entering into the Put and Call Option.

An Option is commonly used and is suitable for developers looking to secure the right to buy property today and to actually buy and develop the property at a later date.

If you are purchasing property or developing land, please contact our property team to obtain advice on how an option may be suitable to your intended development project.

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