Put and Call Options: How They Work in Property

A put and call option is an agreement that gives the buyer the right to require the seller to sell (the call option) and the seller the right to require the buyer to buy (the put option), usually within set periods. It is used by developers buying sites that need approvals, by investors, and in some off-the-plan and land deals.

Optimum Lawyers is a property law firm in Parramatta Square, led by principal solicitor Wisam Assi. We act on purchases, sales, settlements and transfers in every Australian state and territory.

How it works

1. The buyer pays an option fee, often a percentage of the price, to secure the property.
2. During the call option period, the buyer can exercise the option and a contract for sale comes into effect.
3. If the buyer does not exercise, the seller can usually exercise the put option during a later period, binding the buyer to buy.
4. The option fee is normally credited to the price, and it is usually lost if the buyer does not proceed when the put option is exercised.

Why parties use one

• A developer can lock in a site while applying for a development approval.
• Settlement can be delayed, which can help with finance and timing.
• Some parties use options to change when duty becomes payable. Duty rules on options and nominations differ between states and can apply in ways people do not expect.

Cooling-off in NSW

NSW cooling-off rules can apply to options over residential property. A buyer who wants certainty usually needs the cooling-off right waived by a solicitor's certificate, and a buyer who rescinds during cooling-off forfeits part of the fee. NSW courts have found that a contract formed when a seller exercises a put option over residential property can still carry a cooling-off right if it was not properly waived.

Risks for buyers

• You can be forced to buy if the seller exercises the put option, even if your finance or approval falls through.
• Check whether the option can be assigned or the buyer nominated, and the duty consequences of doing so.
• Lodge a caveat to protect your interest during the option period where appropriate.

Risks for sellers

• The property is tied up for the option period.
• Make sure the option fee is large enough and that the put option is properly drafted, so the buyer cannot walk away cheaply.
• Check the GST and tax position with your accountant.

What clients say

“He represented me through a time-sensitive property purchase and was exceptional from start to finish.”

Jarrod Oliver, Google review

Questions about put and call options

What is the difference between a put option and a call option?

The call option lets the buyer require the seller to sell. The put option lets the seller require the buyer to buy.

Do I get my option fee back?

Usually not if you fail to complete after the option is exercised. It is normally credited to the price if the sale goes ahead.

Is there cooling-off on a put and call option in NSW?

Cooling-off rules can apply to residential options, so they are usually waived with a solicitor certificate. Get advice before you sign.

Can I caveat the property under a put and call option?

Often yes, because the option gives you an interest in the land. Check the option deed first.

Related: Caveats on property | Commercial property lawyers | Cooling-off periods