Option Deeds

16 September, 2016

The residential and commercial property market in Australia over the preceding few years has seen prices continue to rise. While many people have found themselves priced out of the market and there have been numerous concerns put forward with respect to the ‘cost of housing,’ many Australians have benefited quite well from the rising market.

Developers, both of residential and commercial property, have sought to take advantage of this situation. Unfortunately, many developers seek to undertake various projects without fully appreciating legal issues which may arise.

When managing a development, it is important that one is provided with flexibility, the ability to manage cash flow and to manage any liabilities with respect to the process. A wonderful legal instrument which may be used for this purpose is the Option Deed.

As the name suggests, such Deeds confer upon the parties options with respect to the underlying property. A quite common form of an Option Deed is the ‘Put and Call Option Deed.’ The option to ‘call’ is given to the purchaser of the property (this may be the developer) so that at a specified time in the future that Purchaser may exercise their right to call the option and the Vendor of the property (usually the landowner) is obliged to sell the property to the Purchaser.

On the other hand, the ‘put’ option confers the right of sale to the Vendor and, by exercising this right, obligates the Purchaser to buy the property at the price agreed between the parties in the Option Deed.

While both Call Option Deeds and Put and Call Option Deeds are quite common with respect to development, Put Option Deeds on their own are quite rare in the market.

As with most matters of a commercial nature there are various Stamp Duty, Capital Gains Tax (CGT) and GST matters which arise as a result of using these Deeds. For example, the option holder has the right to novate (or assign) their rights to another party. While this has the obvious advantage of allowing the option holder to dispose of the interest in the land (hopefully) for a profit, it triggers ‘Call Option Assignment Duty’ under s107 of the Duties Act (NSW) 1997. This should be factored in when a party is wishing to assign their rights as an option holder to another party.

While the current state of the Australian property market has occasioned numerous opportunities for developers to profit from these activities, it is important to ensure that you have right legal advice so that there are no nasty surprises along the way. Further, although the use of Put and Call Option Deeds can be quite usual, particularly in the context of developing land, one must ensure that they are correctly drafted by professional and competent practitioners.

The experienced, friendly and professional team at Access Law Group can assist you with this process and help you undertake what could be a profitable enterprise in today’s property market.