Put and Call Options for Property in NSW: A Plain-English Guide
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Call Options
Important: One of the very few legal issues that cannot be fixed after the fact is missing an option deadline. The option period is finite and time is of the essence. If a purchaser with a call option — or a vendor with a put option — fails to exercise it on or before the expiry date, the option lapses. Always exercise the option exactly as required under the option deed.
Put and call options are legal mechanisms used in property transactions to give one or both parties the right to buy or sell a property at a pre-agreed price within a set timeframe — without being immediately obligated to complete the sale.
CLS Legal has been advising property buyers, vendors, and developers in NSW since 2010.
This guide covers call options, put options, and combined put and call options for conveyancing transactions in New South Wales.
A call option gives a purchaser (also called the grantee) the right, but not the obligation, to buy a specific property at a predetermined price within a specified period of time known as the option period.
How a Call Option Works
During the option period, the vendor (also called the grantor) is prevented from selling the property to anyone other than the purchaser. The vendor can conditionally sell to another party, but only on the condition that the purchaser does not exercise the call option — and any such sale cannot be completed until after the option period expires. This arrangement is uncommon in practice.
The terms of the call option are set out in an option deed. The deed must comply with the Conveyancing Act 1919 (NSW) (the Act), which requires a valid contract for the sale of the property to be attached to it.
For residential property, the Act also provides that the purchaser has a cooling-off period unless the requirements of Division 9 of the Act are met and a s66ZF certificate is given at or before the time the option is granted. Additional requirements apply to residential property, including a minimum option period of three months.
What the Option Deed Covers
The option deed will set out:
- How the option is to be exercised
- Whether the purchaser can assign its rights to a nominee
- Any additional rights the purchaser has during the option period — for example, to obtain development consent for the property, or to access the property to prepare plans
- How the option fee is to be dealt with
- Any additional obligations on the vendor — for example, to obtain development consent
- Any other agreements between the parties
The Option Fee
The purchaser pays the vendor an option fee in consideration for the vendor granting the call option. If the purchaser exercises the option and proceeds with the purchase, the option fee is usually (but not always) credited toward the purchase price. If the purchaser does not exercise the option, the option fee is forfeited to the vendor.
When a call option is exercised, the contract attached to the option deed comes into effect. Stamp duty is not payable on the option deed itself — it is payable on the contract once it comes into effect.
Assigning a Call Option
Most call options are transferable. The purchaser can assign its rights to another party or nominee on the same terms as the option deed. This allows the purchaser to sell the option to a third party at a premium. Stamp duty is not payable on an assignment of a call option, even if the purchaser makes a profit on the transfer. An assignment is effected by a simple deed in which the original purchaser nominates the assignee as the purchaser in their place.
Advantages of a Call Option
- Delays stamp duty on a long-term contract or one that is conditional on development consent, Foreign Investment Review Board approval, or similar
- Allows the purchaser to obtain development consent or investigate matters that could add value to the property without being obligated to buy
- If transferable, allows the purchaser to sell the option without incurring stamp duty and without the vendor knowing the profit made
Disadvantages of a Call Option
- The vendor has no guaranteed sale unless and until the purchaser exercises the option
If you are unsure whether to exercise your call option before the deadline, contact CLS Legal immediately on (02) 9279 0919. Missing the option period cannot be undone.
Put Options
A put option is granted in the same way as a call option, but with the roles reversed: the purchaser is the grantor and the vendor is the grantee.
A put option gives the vendor the right — but not the obligation — to require the purchaser to acquire the property on the terms of the option deed and attached contract. All of the matters discussed above in relation to call options, including the advantages, apply equally to put options.
In effect, a put option is as powerful as a contract for the vendor, with one added benefit: the vendor retains the right to decide not to exercise the option. This removes the main disadvantage associated with a call option.
Protecting the Vendor
Where the purchaser is a corporation, the put option deed should include a personal guarantee. The purchaser should also provide security equal to the deposit amount under the contract at the time the put option is granted. The exact amount depends on what the parties negotiate.
To protect the vendor’s interests, the grantor (purchaser) of the put option should be an entity with sufficient resources to complete the purchase if the vendor exercises the option. This is less critical for the purchaser under a call option, since the call option purchaser has no obligation to complete.
Put and Call Options
A put and call option combines both a put option and a call option — usually in the same document and between the same parties. This gives both parties a degree of flexibility and mutual protection in the one deed.
Options Quick Guide
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Contact
- Suite 6.05, Level 6, 12 O'Connell Street, Sydney
- info@clslegal.com.au
- (02) 9279 0919
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Speak to CLS Legal About Your Option Transaction
Our team advises buyers, vendors, and developers throughout NSW on all aspects of option transactions, including:
- Drafting and reviewing option deeds for call options, put options, and combined put and call options
- Advising on s66ZF certificates and cooling-off period requirements for residential property transactions
- Structuring option assignments and nominee arrangements to avoid unnecessary stamp duty
- Advising vendors on security and personal guarantee provisions in put options
Call (02) 9279 0919 or request a consultation.
