News & Events

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.

At Access Law Group, we regularly deal with small businesses, and issues faced by them arising from Agreements with large, sometimes heavy handed organisations. One of those issues is non-negotiable terms and conditions that they have been required to sign up to.

We also regularly deal with large organisations who seek to enforce the terms and conditions in their contracts, and who experience common difficulties through the litigation process.

On 20 October 2015, a new piece of legislation was passed which will affect the validity of certain terms in standard form Business contracts.

For the purposes of this law, an unfair contract term is a term that is not reasonably necessary to protect the interests of a party.

In effect, this law extends the application of unfair contract terms from consumers to small businesses.

What this means is that small businesses, (defined below,) will now be able to seek protection from unfair standard form contract terms, and that large businesses, and other businesses with standard form contracts, need to review their contracts and ensure that they are drafted in legally effective ways.

For the purpose of this legislation, a small business contract is entered into when at least one party of the contract is a business that employs fewer than 20 persons, and either;

  1. The upfront price payable under the contract does not exceed $300,000,00; or
  2. The contract has a duration of more than twelve (12) months, and the amount payable over those twelve (12) months does not exceed $1 million.

It is estimated that this Bill will affect up to 95% of small businesses.  It is an appropriate time for you to review your terms and conditions, and the continuing supply contracts that you have with your suppliers, to ensure that you have a full and proper understanding of the provisions, and how this new law will affect same.

The new law will not come into effect until 20 October 2016, (at the present time).

This enables small business, and larger organisations, to take measures to adapt to the new provisions.

If you would like to discuss how this new law may affect you as a small business, or as a larger organisation that utilises standard form contracts, please contact James Welch, or our team at Access Law Group.

The Fair Work Ombudsman has released details confirming that over the 2015-2016 financial year, prosecutions against employers have included orders against the people making the decisions that breached the Fair Work Act, or other industrial law.

People making decisions in organisations, including human resources managers, external advisors, recruiters, and directors of corporate entities, need to be vigilant to adopt best practice and ensure compliance with industrial law. Employers seeking to wind up their companies in order to avoid prosecution will likely face personal penalties towards the upper end of the maximum penalty for reasons of deliberately trying to avoid lawful obligations.

Employers seeking to employ the vulnerable members of the community, including young workers, people with disabilities, older workers, migrant workers, or people at some other form of disadvantage, need to be particularly aware of the Fair Work Ombudsman’s policies directed towards protecting these workers, and bringing actions against employers (and people) who infringe on the vulnerable employee’s rights.

Penalties range from approximately $10,000.00 for an individual, to approximately $50,000.00 for a corporation, per breach. In circumstances of multiple breaches, penalties could be in the nature of hundreds of thousands of dollars.

For information or advice in relation to responding to an investigation by the Fair Work Ombudsman, or allegations concerning a breach of an industrial agreement, please contact James Welch at Access Law Group.