*The contents in this blog relates to legislation in New South Wales.
Sometimes a Purchaser, usually a developer, may choose to purchase property by way of a Put and Call Option Deed rather than by the usual method of a Contract for Sale of Land.
The main reason for choosing a Put and Call Option Deed over a Contract for Sale of Land is because the stamp duty liability on the purchase does not arise until Contracts for the purchase of the land are exchanged on exercise of the option.
A recent case of BP7 Pty Ltd v Gavancorp Pty Ltd [2021] NSWSC 265 highlights the risks to the Vendor in selling residential property by way of a Put and Call Option by way of the cooling off period available to the Purchaser.
In this case BP7 Pty Ltd (the Purchaser) entered into a Put and Call Option Deed (the Deed) with Gavancorp Pty Ltd (the Vendor) to purchase a residential strata lot. A Contract for the Sale of Land was attached to the Deed. The Deeds stated the time for the Purchaser to exercise their option was by 3 March 2020. The Purchasers had paid their Call Option Fee in accordance with the Deed but did not exercise their call option by due the date of 3 March 2020. So the Vendor exercised their put option in accordance with the terms of the Deed and so the Contract, which formed part of the Deed, became binding from that date, 5 March 2020.
However, after this date the Purchaser then submitted a Notice of Rescission in accordance with the Purchaser’s cooling off rights and demanded the refund of the Call Option Fees paid under the Deed and which, under the terms of the Deed, had converted to the deposit under the Contract, less 0.25% of the purchase price.
The questions raised in this case was firstly had the Purchaser validly rescinded the Contract for Sale and secondly was the Purchaser entitled to a refund of the Call Option Fee as the deposited under the Contract?
The Court concluded that as regards to the first question that purchasers under a put and call option deed for the purchase of applicable residential property have the benefit and protection of a five business day cooling off period unless such benefit is waived by the Purchaes by way of a Section 66W Certificate. And so following on to the second question, the Court concluded that as a cooling off period was applicable to this Contract, and the rescission was valid, the deposit/call option fee less 0.25% was to be refunded to the Purchaser.
So what does this mean for Vendors looking to enter into a Put and Call Option for the sale of residential property. It means that unless a Section 66W Certificate is provided at the time the option is exercised and the Contract entered into between the parties, the Purchaser will have the benefit of a cooling off period under the Contract. It is not enough to simply include a Section 66W Certificate as part of the Deed and Contract it must be signed by the Purchaser’s Solicitor and served with the signed Contract and Notice in accordance with the terms of the Deed.
Please do not hesitate to contact our office if we can help you with a Put and Call Option Deed.
