Purchasers looking to develop residential property sites are increasingly entering into put and call option deeds in lieu of conventional sale contracts. Entering an option deed is becoming a more popular option for purchasers due to increased flexibility regarding the time at which land transfer duty (also known as ‘stamp duty’) becomes payable.
Put and call option deeds give rise to contractual rights and obligations between the parties who have entered the agreement. In such agreements, the call option confers a future right upon the buyer to oblige the vendor to sell the land whereas the put option confers a future right upon the vendor to oblige the purchaser to purchase the land.
In scenarios involving the sale of land, the agreement usually attaches the sale contract and results in the same outcome as if traditional sale of land contracts had been executed. Stamp duty, however, is not payable until the exchange of contracts. Therefore, entering the option agreement provides certainty that the property will be sold during a specified timeframe while allowing the transfer duty to be deferred until the option is exercised.
A recent Supreme Court decision (BP7 Pty Ltd v Gavancorp Pty Ltd  NSWSC 265) has provided a timely reminder for vendors that put and call option deeds are not the same as sale contracts and careful attention should be given to the terms of the deed with due consideration made with respect to the current legislative framework.
The case in question involved the sale of a number of properties where the purchasers failed to exercise their call options. In absence of the call options being exercised, the vendor exercised the put option to compel the purchasers to purchase the properties. By exercising the put option, the vendor sought to force the sale by binding the purchasers to the sale contracts that had been attached to the option deed.
The vendor was precluded from forcing the sale as the purchasers had provided notice of their intention to rescind the sale contracts by exercising their statutory cooling off rights. Not only were the purchasers seeking to rescind the contracts, but they also sought a refund of the call option fee which is the equivalent of the deposit under a usual sale of land contract. A dispute between the parties arose as the vendor challenged the purchasers’ rights to validly rescind the contracts.
The Court found in favour of the purchasers, providing that the purchasers were entitled to validly rescind the sale of land contracts and ordering the vendor to refund each purchasers’ call option fees (excluding 0.25% of the purchase price which was payable to the vendor).
It is currently standard practice for vendor’s representatives to supply purchasers with section 66ZF certificates to waive purchasers cooling off rights in the event that call options are exercised. Following this decision however, it may also be wise for solicitors acting for vendors to require purchasers to supply a section 66W certificate on or before the date the parties enter into the call option deed.
Requiring a section 66W certificate will ensure that purchasers are precluded from exercising their right to rescind under the statutory cooling off periods in the event that put options are exercised.
This article was co-authored by Law Cadet Bill McLaughlin.
Image Credit - ThomBal © Shutterstock.com