Put and Call Option Agreements
A Put and Call Option Agreement is an agreement between a potential Seller and potential Buyer where the Buyer is given the option to force the Seller to sell the property to them (‘Call Option’), and the Seller is given the option to force the Buyer to purchase the property from them (‘Put Option’).
Generally, the Call Option must be exercised by the Buyer during a specified period and once that expires, the Seller then can make the Buyer purchase the property by giving notice in a specific period to exercise the Put Option.
It is only upon the exercise of either the Put or Call Option that a Contract of Sale of the property is formed. The terms of the resulting contract are typically attached to the Option Agreement. It is therefore critical that the option deadlines are strictly complied with, and the parties exercise their rights in the relevant Option Period. If a party fails to exercise an option, it will typically lapse and in some cases, an option fee will be forfeited.
There are several motivations for using a Put and Call Option Agreement including:
- Delaying a Buyer’s obligation to pay transfer duty in relation to a property
- Giving a Buyer the ability to nominate another Buyer to buy a property without having to be liable for paying double stamp duty; or
- Delaying the sale of a property to the following financial year for tax reasons.
In each case, it is important to understand the motivations behind the transaction and ensure the clauses are appropriately drafted to safeguard your interests.
