In real estate terms, a put and call option agreement is a contract made between a potential buyer and seller for the future rights to buy or sell a property at a specific price or on specific terms. In essence, put and call options agreements grant the parties the option, but not the obligation, to enter into a sale transaction.
There are two types of options covered under a put and call agreement:
Call Option: a call option gives the buyer the right to buy the property and requires the seller to sell the property to the buyer upon the exercise of this option.
Put Option: a put option gives the seller the right to sell the property and requires the buyer to buy the property from them upon the exercise of this option.
It is important to note that both the put option and the call option will usually have strict timeframes. The parties will need to exercise their rights under these timeframes, otherwise they risk losing the option lapsing.
Why Might Put and Call Option Agreements Be Used?
Put and call option agreements are commonly used for properties being purchased by a developer. These agreements usually have the effect of delaying the settlement, which may be useful for:
- where a party needs to delay the payment of stamp duty;
- where a party needs to delay the settlement until the next financial year for tax purposes;
- where a buyer needs to conduct due diligence on the property before they commit to the purchase;
- where a buyer wants to make sure they can obtain a development approval before they commit to the purchase; or
- where a buyer needs to obtain advice in relation to the correct buying entity.
Obtaining Legal Advice Before Signing
A put and call option agreement is not a standard contract for the sale of a property in Queensland. It is important that both parties obtain advice in relation to the structure of the put and call option agreement, including their obligations and relevant timeframes under the agreement. Other terms like an option fee paid to the seller, or the due diligence clauses, also require close consideration.
Put and call option agreements also usually have a sales contract attached. This contract will be entered into by the parties once the put or call option is exercised. It is therefore important that this contract is reviewed prior to signing the put and call option agreement, as the terms of the contract must be exactly the same as what is included in the put and call option agreement.
Our lawyers have significant property experience and can assist with drafting, reviewing and negotiating put and call option agreements. Click here to book in a free 20-minute consult with us.
