A Put and Call Option Agreement is an agreement between a potential seller and a potential buyer. It is not an agreement to buy / sell a property, rather it is a precursor to such an agreement under which:
- the buyer is given the option to require the seller to sell the property to them (“Call Option”); and
- the seller is given the option to require the buyer to buy the property from them (“Put Option”).
Either option is exercised by the buyer or seller, during a defined period (“Option Period”), giving to the other party, a notice exercising the relevant option.
It is only upon the exercise of either the Put or Call Option that a contract for the sale of the property is formed. The terms of the resulting contract are usually set out in a form of contract that is annexed to the Option Agreement.
Put and Call Options delay the formation of the contract whilst still effectively committing the parties to the transaction before the contract comes into existence. This can be done for a variety of reasons, including:
- delaying the obligation to pay stamp duty on the contract;
- delaying the date of disposal of a capital asset to a later tax year;
- permitting the buyer to find and nominate another entity to enter into the eventual contract; which effectively allows the buyer to on-sell the property to a third party without entering into a formal contract; and
- allowing a builder to secure a site to on-sell to a third party wishing to purchase a house and land package.
If Put and Call Option Agreements are used, the parties should take care to ensure that the relevant option is exercised during the relevant Option Period. If an option is not exercised during the relevant Option Period, then the option will lapse and usually, any option fee that has been paid, will be lost.
A Put and Call Option Agreement can be considered as an alternative to a standard sale contract in circumstances where the parties wish to delay the formation of the contract for stamp duty or tax reasons.
Contact us for further information or a confidential discussion on whether a Put or Call Option Agreement is appropriate in your circumstances.