Buying a property under Put and Call option deed
In General, Put and Call option is an agreement to agree to buy or sell of property on future date or when the specific date occurred or within a certain time and certain terms and conditions, but it is not a contract of sale of land itself.
These days, Buying and selling of real estate through an ‘option deed’ has gaining significantly popularity in the growing property development market, especially using for the acquisition of an unregistered land for future development in New South Wales. It helps the purchaser to conduct the due diligence before obligating to purchase a particular land/property and assists with the flexibility to the developer in the management of cash flow by securing a selling price before complete the development in the fluctuate property market .
Why Purchaser required Call Option to be granted?
Call option is granted by vendor/developer in the favour of Prospective purchaser to protect the purchasers right to buy a property that required Vendor to sell the subject land when Purchaser exercise a call option. The benefits of granting call option are
- that it gives the opportunity to undertake due diligence on the land, lodge DA, obtain approvals to develop the land and secure finance for the purchase before exercise a call option.
- It protects the covetable interest over the land in favour of buyer
- Consideration or value which is agreed between vendor/developer before sign a call option will not change regardless of market value fluctuations however if market value is increased during the call option period, buyer will be benefitted by value increase.
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- Purchaser can nominate the or assign another buyer to buy the property.
- May defer the tax liability to until next financial year such as CGT for next financial year ( Please consult with your Tax Agent for details.)
What if vendor/ developer also imposed a put option on Deed?
While put option is granted by purchaser to the vendor/ developer, seller required the purchaser to purchase the property at the future date which means vendor can force the purchaser to buy a property within a time stipulated in the contract.
A buyer grants a put option against a seller, which is not the same as a call option. In exchange for the right to enforce the put option, the buyer grants the seller the right to require the buyer to purchase the property at a future date.
What to look at option deed?
There are some tips and tricks to look at option agreement when it signed with due care and diligence.
- On Sell Option : Purchasers use a Put and Call Option Agreement is to provide the option to on-sell the property without triggering double transfer duty and secure the uplift payment on sale in NSW. Ordinarily the buyer will obtain the development approval and then on -sell the property under the option agreement on higher price, otherwise buyer will on sell the property for the profit straight away without obtaining any development approval which is often call as short option. So, call and put option deed must be properly drafted to contemplate you being able to on sell the property and receive the profit at settlement.
- Option to nominate the third party / subsequent buyer: Nomination clause allow the purchaser to nominate subsequent purchaser to settle the property however it must be clearly mentioned in the terms and conditions of the deed as purchaser can use such mechanism to on -sell the property to the third party ,nominee or assignee to transfer the property .
- III. Option to assignment of the deed : The option of the right to assign the contract in the agreement allow the purchaser to transfer the exclusive right to the ultimate buyer. there are two option to assign the deed to the ultimate buyer that firstly purchaser may need a written consent/ approval of such assignment before assign to the third party or purchaser may need to get an approval from the vendor to assign the deed to the ultimate purchaser.
- Right to Caveat. An option deed creates a caveatable interest in the property and prospective purchasers should lodge a caveat over the title to protect their interest on the land.
- Stamp Duty Obligation: Stamp duty is payable within a 3 months of the option agreement being entered into and assessed on the basis of call option fee and any other consideration paid by option grantee to option grantor because of "change of beneficial ownership". however security deposit is excluded from paying stamp duty if such security deposit, paying to vendor/grantor /developer is genuine because such security deposit is fully refundable if the option is not exercised but the duty paid on grant of option is not refundable even if option is not exercised. Stamp duty paid to grant of option is not credited towards the subsequent contract ( assignee). but if Assignee nominate the another assignee subsequent contract ( nominee will become a grantor) required to pay the call option assignment duty as if option were a transfer of a duty . however in this case nominee( become grantor) receive a credit for the duty paid and subsequent nominee pay the the full stamp duty on the transfer of the land. ( This is a complex tax proposition Please consult with your Conveyancer to accurate stamp duty calculation of stamp duty to be paid to LRS in your purchase under option deed)
- Waiver of Cooling off Period: Unlike most contracts for the sale and purchase of residential property, there are no cooling-off rights available to the purchaser once the option is exercised and purchase provide a certificate to waive cooling off period under Section 66ZF of Conveyancing Act 1919. and the contract becomes immediately binding.
- Duration of DA approval, Option Period, right to access the property , completion date, legal cost, disclosure requirement under relevant law and regulation also equally should be consider before signing a option agreement with the vendor .
In Conclusion : Option deeds offer a flexible approach to buying and selling property at a future date, making them an excellent choice for property transactions. However, these arrangements are complex and involve significant financial and tax implications. Parties entering into an option agreement should seek advanced legal advice from conveyancer/solicitor and also the deed should be carefully drafted to ensure that the terms align with their respective requirements.
If you or someone you know wants more information or required any assistance or have any questions , please contact us on KDL conveyancing at info@kdlconveyancing.com.au
or call on 0451 585 152