Key Takeaway Points
- Put and call options let a buyer secure a property now and settle later, giving both sides certainty while a buyer sorts development approval, finance and/or due diligence.
- These agreements come with real risks, mainly around missed deadlines and poor drafting, that can cost a party the deal entirely.
- Get legal advice before signing one. A put and call option only works if it is drafted to do exactly what you need it to do.
Sound familiar?
You’ve found the site. The numbers work. There’s just one problem: you’re not ready to buy it yet.
Maybe you need six months to lock in development approval. Maybe you’re still arranging finance. Either way, the seller isn’t going to sit on the property indefinitely out of goodwill and you’re not ready to sign an unconditional contract.
This is exactly the gap a put and call option can close.
What it means, without the jargon
Forget the legal label for a moment. A put and call option is a way to freeze a deal in place while one side gets ready to complete it.
- Call option: the buyer’s right to say ‘I’m buying this’ later, on a price and terms agreed today.
- Put option: the seller’s right to say ‘you’re buying this’ later, on the same agreed terms.
Most commercial deals use both together, which is why they’re usually called put and call options. Whoever holds the right can only use it within an agreed window, and only by following the exact process set out in the agreement. There’s often a fee for holding that right, and the future contract of sale sits attached to the agreement, ready to go the moment the option’s exercised.
What’s in it for sellers
- Certainty: a sale that’s effectively locked in, even in a complex deal.
- A buyer today, cash later: a buyer secured now, with settlement to follow, which can suit your tax position or business plans.
- An exit if it falls over: if the option isn’t exercised in time, you may be able to put it to the buyer to complete, or keep the property and walk away.
What’s in it for buyers
- Time: secure the site now, and spend the next few months on development approvals, without necessarily committing to an unconditional purchase first.
- Price certainty: lock in today’s price while you finish due diligence or arrange financing.
- Flexibility: in Queensland, a call option may let you nominate another party to complete the purchase, handy if the entity that will ultimately buy the site isn’t set up yet.
Where these deals go wrong
Put and call options solve a real problem. But they’re unforgiving if the details aren’t right.
- Missed deadlines: miss the window to exercise the option, or exercise it the wrong way, and it’s gone. So is everything already spent on development approval or due diligence.
- The property changes hands: if the property is dealt with in a way that undermines the option before it’s exercised, that right can end up worthless.
- Banks can be stubborn: some banks won’t treat an option the same way as a contract of sale and will hold off on a finance application until the option is exercised. Worth knowing: once the contract of sale is signed, it’s usually binding even if finance later falls through.
- Bad paperwork: get the agreement wrong and it can be unenforceable entirely. The same risk applies to any contract of sale.
None of this is a reason to avoid put and call options. It’s a reason to get the agreement right before you sign it.
Next steps
Thinking about a put and call option for your next deal, on either side of the table? Our Property team can help you get it right the first time.
