What is a Put and Call Option Agreement?
A Put and Call Option is an agreement between the vendor, known as the “Grantor”, and another party, known as the “Grantee”, for the sale of property or properties where a Contract for Sale has not yet been entered into. The Put and Call Option allows the parties to enter into an agreement to sell or purchase property at a future point in time or on the occurrence of an event.
It can set out all the important details for the eventual sale of the property or properties such as the sale price of the property or properties that is to be noted on the Contract for Sale and the period of time which will be allowed for either party to exercise its Option as well as expiration dates for the Options.
Can a third-party be nominated in a Put and Call Option?
The Option agreement can also allow the Grantee to nominate a third party to be the purchaser of a property or the properties. This allows the Grantee to on-sell the property or properties without ever having to enter into a Contract for Sale itself. This is commonly the case when a developer and builder have entered into an option agreement, the builder is generally the ‘Grantee’ who has the benefit of nominating a third party “the Nominee” to purchase the land.
How does a Put and Call Option work?
There are two parts to a Put & Call Option Agreement, firstly the Call Option, which if exercised, allows the Grantee to give notice to the Grantor that nominates themselves or a third party “the Nominee” to enter into a Contract for Sale to purchase the property or properties.
Secondly, the Put Option which, if exercised, allows the Grantor an enforceable right to have the Grantee enter into a Contract for Sale to purchase the property or properties, if a third party has not been nominated within the specific option periods as set out in the Deed.
Do Put and Call options have expiration dates?
Both the Put Option and Call Options have an expiration date which is agreed between the Grantor and Grantee.
What happens to put and call options when it expires?
If both the Put Option and Call Option are not exercised, prior to the expiration dates as set out in the deed, the agreement comes to an end and the property or properties remain the vendors and both parties lose the rights associated with the Options.
What are the benefits and risks of entering into a Put & Call Option Agreement?
The Put and Call Option Agreement allows both parties time to make arrangements and to have a delayed settlement while the property is being secured. Being able to select the settlement period can also help make sure that it will occur at a time that is advantageous in terms of taxation or other financial implications.
Is stamp duty payable on a Put and Call option?
Prior to 19 May 2022 a Put Option Agreement, Call Option Agreement and Put and Call Option Agreement were not considered to be dutiable transactions and therefore did not attract any stamp duty from New South Wales Revenue, effectively allowing the Grantee to not pay any duty at all. This is no longer the case as from 19 May 2022 New South Wales Revenue has now deemed any Put Option Agreement and/or Call Option Agreement and/or Put and Call Option Agreement to be a transaction that results in a change of beneficial ownership and therefore one that DOES attract a stamp duty liability with New South Wales Revenue.
ABOUT CHRISTINE BASSETT:
Christine is a Licensed Conveyancer and Justice of the Peace at Coutts’ Narellan office. Since joining Coutts Lawyers & Conveyancers in 2013, Christine quickly immersed her interest into property and has since completed studies of Conveyancing Law and Practice at Macquarie University; and is accredited with the Australian Institute of Conveyancers NSW.
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