- When advising on or drafting an option deed/agreement, ensure that the need for such an arrangement has been adequately considered and there are no ambiguous terms or ramifications.
- When exercising an option, ensure that requirements for exercise outlined in the deed/agreement are meticulously complied with.
- Practitioners who use conveyancers, junior practitioners or paralegal staff on property transactions should take special care to supervise compliance with the requirements.
Put and call options for the purchase of land are well-known to property lawyers, with their use often preferred as a way to manage tax, save revenue or enable development purchases. However, the increased use of such arrangements, particularly for high value developments, makes this area of practice increasingly risky for practitioners.
Option agreements, as opposed to an immediately effective contract for sale, act to defer the formation of the contract, thereby postponing payment of stamp duty or legal fees, and any CGT implications. They also enable a corporate purchaser to defer any final decision on the identity of the ultimate purchaser. Two other benefits that are becoming more central are where:
- the purchaser wants time to determine whether to purchase the property at all. This is common if the property is intended to be part of a proposed multiple lot development and it is unclear whether all other relevant lots can be purchased or development approval will be obtained; and
- there is an intended ‘on-sale’. Many option deeds/agreements contain provisions allowing the purchaser to nominate a subsequent party to be the ultimate purchaser.
The increased use of such arrangements as part of large-scale developments impacts upon the risks facing practitioners. They must therefore be treated with caution.