Put and call option nsw


A call option allows a purchaser to enforce their right to buy an asset from a vendor at a future time, usually at a pre-determined price, by a particular date. A call option benefits the purchaser, as the purchaser has a right to exercise the option and force the vendor to sell.

A put option allows a vendor to secure a right to compel a purchaser to buy an asset, at an agreed price, by a particular date. A put option benefits the vendor as the vendor has the right to exercise the option to force the purchaser to buy. Each of these put and call options benefit only one party.

Additional requirements for options for the purchase of residential property are referred to in Part 4 Division 9 of the Conveyancing Act This article focuses on their use for real property i. An Option Agreement can contain what is known as a put option, or call option, or both. This is the most common method of exercising options concerning real property, however other mechanisms available depending on specific circumstances or type of agreement.

The purposes and type of Option Agreement will determine what is a reasonable basis for requiring option fees or deposits to be paid. For example, an Option Agreement may provide that:. There can be adverse tax consequences of utilising a large non-refundable option fee, so it is imperative that consideration is given to the capital gains tax and GST treatment of option fees before the Option Agreement is entered into.

There can also be the risk that the arrangement constitutes an instalment contract read more about those here if it is not properly prepared. Where an Option Agreement is intended to be more mutually beneficial or grants both parties the right to compel the other to buy or sell respectively , it is more common for the Option Fee to be a nominal amount i. This may avoid some adverse tax and duty consequences.

Option Agreements may have set time frames during which a party may exercise its option, or otherwise the option periods can be triggered by certain events for example, the Buyer obtaining a development approval.

Option Agreements can also allow for the asset to be sold to another party on exercise of the option. This can be useful where the buyer has not yet determined or established the legal entity that is to acquire the asset. A put option allows a vendor to secure a right to compel a purchaser to buy an asset, at an agreed price, by a particular date.

A put option benefits the vendor as the vendor has the right to exercise the option to force the purchaser to buy. Each of these put and call options benefit only one party. Additional requirements for options for the purchase of residential property are referred to in Part 4 Division 9 of the Conveyancing Act Extreme care must be taken when an option is exercised to ensure that it is done strictly in accordance with the time frame and manner contained in the agreement.

Beware of GST liability if there is a taxable supply.