Understanding Put & Call Options: A Plain-English Guide for Property Owners

Options Explained Simply

Put and call options are a common contract structure in development site sales. They sound complicated, but the concept is straightforward. This guide explains them in plain English so you can make informed decisions.

What Is an Option?

An option gives one party the right (but not the obligation) to buy or sell a property at an agreed price within an agreed timeframe. The property owner grants this right in exchange for an upfront fee.

The Two Types

Call Option (Developer's Right to Buy)

The developer pays you a fee (the "option fee") for the right to purchase your property at an agreed price within a set period. If they exercise the option, the sale proceeds. If they do not, you keep the option fee and the property.

In simple terms: The developer is paying for the right to decide later. You get money now, and you might sell later.

Put Option (Your Right to Sell)

You have the right to force the developer to buy your property at the agreed price. This protects you if the developer gets cold feet.

In simple terms: You can make the developer buy if they try to walk away.

Put AND Call Option (Most Common)

Both options exist in the same agreement:

• The developer CAN buy (call option)
• You CAN force the sale (put option)
• The price and timeframe are agreed upfront

This is the most balanced structure and is standard in development site sales.

Why Developers Use Options

Planning Approval Risk

Developers often want to secure your property before they have council approval. The option period gives them time to:

1. Lodge a Development Application
2. Obtain council approval
3. Arrange finance based on the approved plans
4. Exercise the option and proceed to settlement

Without options, the developer would need to buy the property outright before knowing if council will approve their plans — a much higher risk.

Stamp Duty Savings

In Queensland, option fees attract lower stamp duty than full property transfers. This saves the developer money, which can translate to a higher offer for your property.

Key Terms to Understand

Option Fee

The amount the developer pays upfront for the option. Typically 1-5% of the purchase price. This should be non-refundable — you keep it regardless of whether the sale proceeds.

Option Period

How long the developer has to exercise the option. Typically 6-18 months. Shorter is better for you; longer gives the developer more time for approvals.

Exercise Price

The price at which the developer will buy the property if they exercise the option. This is agreed at the start and does not change during the option period (unless the agreement includes escalation clauses).

Exercise Event

What triggers the option being exercised. Usually the developer's decision after obtaining council approval and finance.

Protecting Yourself

Insist on a Substantial, Non-Refundable Option Fee

The option fee compensates you for taking the property off the market. If the developer does not proceed, you keep the fee. A higher fee gives the developer more incentive to follow through.

Guideline: 2-5% of the purchase price. On a $1M property, the option fee should be $20,000-$50,000.

Keep the Option Period Reasonable

Shorter periods (6-12 months) keep pressure on the developer to act. Long periods (18-24 months) tie up your property with uncertain outcomes.

Include a Put Option

Ensure you have the right to force the sale if the developer obtains approval but drags their feet. The put option protects you from being strung along.

Get Independent Legal Advice

Option agreements are complex legal documents. Engage a solicitor experienced in development site transactions to review the terms before you sign.

Continue Living in the Property

During the option period, you typically remain in the property. The agreement should specify that your occupancy continues undisturbed until settlement.

When to Accept an Option Structure

Accept if:

• The option fee is substantial and non-refundable
• The option period is 6-12 months
• The exercise price reflects full development value
• You have a put option for protection
• Your solicitor has reviewed and approved the terms

Decline if:

• The option fee is minimal or refundable
• The option period is longer than 18 months
• The exercise price is below market value
• There is no put option
• The developer will not agree to reasonable terms

Contact ACRES if you have been offered an option agreement and want an independent assessment of the terms.

Daniel McCormack

Managing Director, ACRES — Australian Commercial & Residential Group

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