A put and call option is sometimes treated in law in the same way as a sale contract and if it relates to residential property, the PAMDA processes – warning statement and presentation etc – must be followed.

put & call ping-pongBut there are exceptions, notably involving property marketing.

The Supreme Court has ruled that a developer’s put and call option to a residential property marketer – that gave the marketer the right to on-sell at a profit –  is not bound by PAMDA*.

Under a developer’s put and call option the marketer “guarantees” a sale of the property for the developer at a particular price by a particular date. It is a common means for a developer to secure sales while a subdivision is being developed or a spec home is under construction.

If the marketer can secure a buyer at the developer’s minimum price, the marketer may “call” for the developer to convey the property to the buyer. Upon settlement, the marketer is entitled to the amount by which the buyer’s purchase price exceeds the developer’s minimum price.

For these benefits, the marketer also agrees to buy the stock at the developer’s minimum price if no other buyer can be secured before the option date. In such a situation the developer may exercise the “put” option to compel the marketer to buy.

In the subject case, D (the developer) entered into put and call options over three residential parcels with M (the marketer). PAMDA provisions relating to contract preparation and presentation were not followed. M was unable to secure a buyer for one of the properties so did not exercise the “call”. D therefore exercised its “put” option requiring the marketer to buy the parcel itself.

M resisted this on the basis that PAMDA had not been complied with, alleging the option and resulting contract were voidable.

The court had to decide whether the put and call options deed was “a contract for the sale of residential property”.  If yes, M was entitled to terminate – if no, D was entitled to enforce the sale.

D argued that there was no “contract” because the option deed granted M specific rights to find and introduce as yet unidentified third party buyers. Thus, it said, the identity of the actual buyer was impossible to ascertain when the option was entered into and the arrangement could not therefore be regarded as a “contract” in law.

The court upheld this argument following a previous decision in 2007** that ruled the same way. PAMDA had no application. The identity of the eventual buyer depended on whether or not M exercised its rights under the call option and if it did, who that buyer was.

D was successfully able to enforce the “put” option and require the marketer to enter into a (PAMDA compliant) contract to buy the property.

* Vale 1 P/L v Delorain P/L [2009] QSC 425
** Cheree-Ann Property Developers Pty Ltd v East West International Development Pty Ltd [2007] 1 Qd R 132

Practice note: This case is very much the exception. Agents should ensure that the PAMDA process is followed for put and call options in respect of residential property.
Note also that on the exercise of an option, the PAMDA warning statement and contract presentation provisions must be followed.


0 Comments

Do you have any questions?

If you have a question, seeking more information or would just like to speak to someone, make an enquiry now and we’ll be in touch with you.