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The Call of the Option – Buying Time

So you’ve found a nice little development site but haven’t quite got all your ducks in a row to enable you to go ahead and pay the deposit. Maybe you are not quite sure what you are allowed to do on the property and it is going to take some time to investigate its potential both with the local Council or other relevant authority. But…you don’t want someone else to buy the property from under you whilst you undertake your investigations (otherwise known as due diligence). You may also be finalising the sale of another property to enable finance for the latest potential acquisition – its all part of the conveyancing process.

To enable you to “buy” some time, you may want to consider entering into an “option agreement”. An option agreement in these circumstances is an agreement whereby the seller grants a right for the purchaser to buy the property at some time in the future. It is also commonly referred to as a call option. Usually, a purchaser provides a set sum of money to the seller for the right to force the seller to sell the property at a pre-determined price at some time in the future.

In NSW, a contract for the sale of land does not come into place until the buyer exercises its right to purchase the property i.e. exercises its option to buy. This has the effect of delaying when settlement will take place. For example, an option agreement may provide you with a right to purchase the property in say 6 to 9 months time rather than entering into a binding contract immediately.

Care must be taken when considering the stamp duty and taxation consequences of entering into an option and professional advice must be sought when considering such financial, stamp duty and taxation consequences. A call option may be an effective way to defer stamp duty liabilities as currently, option deeds themselves are not dutiable transactions in NSW (as opposed to the assignment or sale of rights under an option agreement).

The wonderful thing about options is that they do not have to be exercised. Whilst you will generally have to pay your option fee, if it turns out through your due diligence that it is not such a great buy, you can just walk away.

If you have any queries about options or the implication of options on the conveyancing process in NSW, please do not hesitate to call one of expert property lawyers here at ClickLaw Australia.

John Kettle
Solicitor Director