Options in Development – Part 1 – what is an option and what forms of options are there?

Many of us have heard of stock options on the share market. Stock options give the buyer the right but not the obligation to buy a particular number of company shares from a seller at a predetermined price within a fixed period of time. If the market price of these shares rises above the predetermined price agreed to between the buyer and seller during this period, the buyer can compel the seller to transfer the shares at the fixed price. This therefore results in the buyer making an immediate gain as they are buying stocks at a price below the current market value. Andrew Pine lawyer does not however offer advice in regard to stock options.

Property options are similar. A fixed price for the property is agreed between the buyer and seller for a certain period of time. The Buyer has the ability to exercise their right to purchase the property during this period of time for this price. But there are a number of terms to familiarise yourself with when dealing in property options. This article is intended to serve as an introduction to the common forms of options which can be used. It is of upmost necessity however that you obtain legal advice in regard to option agreements before you execute them. Andrew Pine solicitor is experienced in acting for a wide range of clients who deal in property options.

As will be noted throughout this article, Option Agreements, whatever their form, have serious and significant legal and financial consequences if not entered into without adequate legal advice. It is therefore essential that you engage a solicitor who can advise you on a particular Option Agreement with reference to your circumstances. Andrew Pine lawyer can be contacted on the details at the bottom of this article.

 

Call Option

A Call Option is a form of option whereby the Buyer has the right but not the obligation to purchase the property at a fixed price during a certain period. This period is called the Call Option Period. If the Buyer exercises the option, it can compel the Seller to enter into a Contract of Sale to sell the property for the agreed price with settlement often occurring shortly afterward. If however the Buyer does not exercise the Call Option within the Call Option Period, they no longer have the right to force the Seller to enter into the Contract of Sale. It is essential to receive legal advice on Call Option Agreements and Call Option Periods. Andrew Pine Solicitor can advise you on Call Options and Call Option Periods.

 

Put Option

A Put Option is a form of option whereby the Seller has the right but not the obligation to force the Buyer to purchase the property at a fixed price during a certain period of time. Sounds like the reverse of a Call Option doesn’t it. Well it is. The period during which the Seller has this right is called the Put Option Period. If the Seller exercises this option, it compels the Buyer to enter into a Contract of Sale to purchase the Property for the pre-determined price with settlement usually happening within a month of this date. If the Seller does not exercise the Put Option within the Put Option Period, they no longer have the ability to compel the Buyer to sign the Contract of Sale. It is worth nothing that while Put Options do occur, it is more common to find a Put and Call Option Agreement, whereby the Buyer first has a right to compel the Seller to sell under a Call Option Period, but if the Buyer fails to exercise its right, the Seller then has a right to compel the Buyer to buy under a Put Option Period. This is often one of the ‘catches’ Sellers add into an Option Agreement to ensure they ‘get something’ out of the deal. If the Buyer changes its mind and does not wish to exercise its Call Option, the Seller may then have the right to exercise the Put Option in some circumstances. Buyers therefore usually attempt to negotiate Call Options, as opposed to Put and Call Options to avoid the scenario where they are forced to purchase. If you are considering entering into any form of Option Agreement, legal advice tailored to your circumstances and the legal documentation is essential. Andrew Pine lawyer is experienced in advising clients on these agreements and can be contacted on the below details.

 

The above article outlines Call Options, Put Options and Put and Call Options. It serves as a general overview as to the rights and obligations provided to both the Seller and the Buyer. Our next article from Andrew Pine solicitor will uncover the terminology used in addition to Call Options and Put Options.

This article should not be substituted as legal advice. As noted throughout, Options (whatever their form) can lead to significant negative consequences if you do not receive legal advice tailored to you prior to you signing them. Andrew Pine lawyer can be contacted on any of the below details.

 

Disclaimer: Andrew Pine is a property solicitor practising in Queensland. Andrew is not qualified to give accounting or financial advice. This article is written solely as an opinion of the writer. This article should not be relied upon for legal, accounting or financial advice. You should always seek advice which is tailored to your individual circumstances.

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