Put & Call options have become a popular addition to the property investor’s toolbox. As their use has grown, so have the opportunities to make property transactions more efficient and versatile. Our Property lawyers  are put and call options specialists and will select the device that will deliver maximum benefit to your transaction.

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A Put and Call option enables for example, a developer in exchange for an ‘option fee’ to allocate certain blocks in an estate to a builder who gains the exclusive right to sell those blocks to home buyers. The benefit for the developer is that they have a guaranteed sale because even if the developer does not find a third party, the ‘put’ option allows them to compel the builder to buy at the agreed price.

The benefit to the builder is that they can package the block as a house and land package.  The builder takes the risk that if they can’t on-sell to a house and land package buyer, they must buy the block themselves.

Put and Call Option Suitability Tool

Looking to test whether a put & call option is suitable for the transaction you propose? Try our interactive assessment tool to determine the opportunities for its use.

Call Option

This type of option allows the grantee to “call” for the property to be sold to him on agreed terms at a particular time in the future or on the occurrence of an event. They can also incorporate a “nomination” that entitles the grantee to specify at any point in the option exercise period, a third party as being the eventual buyer.

Stamp duty is payable upon the option fee which can be as little as $1. If the option fee is a substantial sum eg $2.5 million, stamp duty is assessed on that sum and is payable at the time of the option. However a credit can be obtained for the stamp duty paid when the  contract or transfer for the property to which the option relates, is required to be stamped.

The option deed may provide that the option fee forms part of the sale price under the underlying acquisition, or that it doesn’t.

Particular care needs to be taken in the drafting of the “nomination” provision so as not to create an additional dutiable transfer.

Options relating to land must be in writing and signed. They invariably annex the form of real estate contract that particularises price etc which when signed by the grantee, accompanied by the specified deposit and delivered to the grantor, constitutes the valid exercise of the option.


Put & Call Options

There is another type of option – a “put” option – where a buyer grants the seller the right to compel the buyer to buy an asset at a specific price in the future.

It is rare for put options to exist in real estate transactions by themselves.

Put options and call options are however often combined in the one transaction, called a “put and call” option to achieve much the same effect as a conventional contract. This is because if the buyer doesn’t exercise its call option, the seller can compel the buyer to proceed under the put option.

The option fee for each option is usually nominal, say $10 this limiting the stamp duty payable before the contract comes into existence to a trivial sum. This defers the payment of substantial stamp duty on the purchase price itself.

Put and call options also allow greater flexibility to the buyer in that they can usually transfer their interest under the option far more efficiently (in terms of stamp duty and legal overheads) than if they had to sell the land or transfer the interest under a purchase contract. Most options of this type also contain provisions allowing the buyer to “nominate” a subsequent party to be the ultimate buyer.

Property marketers often take put and call options to gain the exclusive right to market lots for sale for a specific period of time.

Importantly, the buyer under a put and call option still has a caveatable interest in the property.

There are however some disadvantages to using a put and call option in place of a regular contract. They are more complex than a standard REIQ document and therefore involve greater time and legal expense in their preparation.

There will be some resistance from property owners who might regard this form of documentation as complex. Extra time is also often required to negotiate the terms of the option agreement.

It must be remembered that if an option to acquire land in Queensland is terminated or assigned, this is classified as a surrender of dutiable property and further stamp duty may be assessable.

It is normal for special conditions to be included in options including amongst others due diligence enquiries, development approvals (if applicable), FIRB and access arrangements.


Side Agreements

Parties to a proposed transfer of property can accommodate additional terms of whatever nature in a “side agreement”. This might occur for example in the case of a long term lease in respect of which the less or sites to grant to the lessee an option to purchase the leased property or even where a put and call option for the property has been negotiated between them. “Side agreements” must, of course, disclose such an agreement to financiers.


Exercising options

Because options can only be exercised strictly in accordance with the provisions of the option deed, be sure to get legal advice when it comes time to exercise an option. Click here to see an example of the incorrect method of exercising a call option and the consequences that followed.

How does it work?

There are typically two main parts in an Option Agreement:

  • The body of the Option Agreement detailing the terms and conditions under which the parties can exercise their option;
  • The contract of sale as an annex to the agreement on options. All details and terms, including the purchase price and contract length, will often be finalised in the contract. Both parties will have to sign the agreed sale contract in order to exercise an option.

This is the most common method of exercising real estate options, but other mechanisms are available depending on particular circumstances or type of agreement.


When to choose a Put and Call Option agreement?

Put and call options postpone the contract creation while binding the parties to the deal effectively before the contract comes into fruition. Our Call Option Lawyers have listed the following reasons:

  • Delaying the obligation to pay the contract stamp duty;
  • Delaying to a later tax year the date of disposal of the capital asset;
  • Enabling the buyer to check and appoint another person to reach an agreement; enabling the buyer to sell the property without formal contract; without a third party;
  • Enable the builder to obtain a third-party platform for selling who wants to purchase a house and a land package.

When using Put and Call Option Agreements, the parties should be careful to ensure that the correct option is exercised during the applicable Option Period. If an option is not exercised during the corresponding Option Period, the option will lapse and usually any payable option fee will be lost.


What prerequisite is required to answer before entering a Options agreement?

  • How long is the option open (duration of the option period);
  • The date of exercise of the option (Date of exercise);
  • If the right is exercised, the full payment of the purchase price happens (Settlement Date);
  • The Asset Details;
  • The fees of the option that both parties will pay;
  • The asset purchase price when exercising the option (purchase price).

If you have any concerns about option agreements or other legal issues related to land, please contact our Put & Call Option Lawyers today.

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