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Put and Call option Agreement is between a Seller and a Buyer of Real Estate

A put and call option agreement is between a Seller and a Buyer of Real Estate.  The agreement grants rights from each party to the other being:-

  1. The Seller gives the Buyer a “call option” to buy the property from the Seller (the Buyer can require the Seller to sell the agreed property) and
  2. The Buyer gives the Seller a “put option” to sell the property to the Buyer (the Seller can require the Buyer to buy the agreed property).

The call option (as defined above) is normally exercisable over a set period of time and the put option period follows that.

Stamp duty is payable on a Put and Call Option Agreement.

put, call, sell, ption, conveyance, conveyancing

Normal provisions in a Put and Call Option Agreement are:-

  1. Identification of the parties and the Real Estate involved,
  2. Disclosure of the purchase/sale price,
  3. Details of whether or not there is a non-refundable deposit (this provision is because the Seller is unable to sell the Real Estate until the Vendor signs a contract for the sale of the Real Estate in favour of the Buyer).
  4. A non-refundable deposit is usually offset against the purchase price if the sale proceeds,
  5. A settlement date,
  6. A draft of an unconditional contract between the parties.

Stamp duty implications arise for the Buyer where a Call option is exercised as the value of the Real Estate may have risen.

Capital Gains Tax implications may arise for the Seller, e.g. if the Option Agreement is for an extended period of time the Seller may need to pay Capital Gains Tax before the property actually gets cash in hand on the sale.

Call options usually include the possibility of nomination of an alternate Buyer to the party named in the Put and Call Agreement.  The wording of the nomination provision may entitle the Buyer to require the Seller to sell the Real Estate to a nominated party at a higher price.

Because of the nature of a Put and Call Option Agreement, that is holding Real Estate off the market, the Buyer will normally be able to lodge a caveat over the Real Estate to protect the Option to buy.

Entering into a Put and Call Option agreement should only be considered after carefully exploring the stamp duty and tax implications.  In addition to consulting a lawyer, an accountant should also be consulted.

This is a general overview only.  For more detailed information contact our office.