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What is a put and call option in property? A sellers guide to option agreements in development site transactions, how they work, and what to negotiate.
Source: ACRES — Australian Commercial & Residential Group | acres.au
What is a Put and Call Option?
A put and call option is a two-part agreement used in property transactions that gives:
- The buyer (call option): The right, but not obligation, to purchase the property at an agreed price within a set timeframe
- The seller (put option): The right to force the sale to the buyer if the buyer hasn't exercised their call option by the deadline
This structure is commonly used in development site transactions because it gives the developer time to obtain DA approval and finance before committing to the purchase.
How It Works in Practice
Step 1: Option Agreement
The developer pays an option fee (typically 1-3% of the agreed purchase price) for the right to purchase your property within a defined period (often 12-18 months).
Step 2: Option Period
During this period, the developer pursues DA approval, conducts due diligence, and arranges finance. You continue to own and occupy the property.
Step 3: Exercise or Expiry
At the end of the option period:
- If the developer exercises the call option, a binding contract of sale is created at the pre-agreed price
- If the developer doesn't exercise, you can exercise the put option to force the sale, or the option simply expires
- If neither party exercises, the option lapses and you keep the option fee
Advantages for Sellers
"The key differences: | | Put and Call Option | Conditional Contract | |---|---|---| | Binding contract?"
Structuring your development site deal
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- Upfront option fee: You receive a payment (usually non-refundable) regardless of whether the sale proceeds
- Agreed price: The purchase price is locked in upfront, protecting you from market falls
- Put option protection: If the developer doesn't proceed after obtaining DA, you can force the sale
- Continued occupation: You remain in the property during the option period
- Limited obligation: Until the option is exercised, there's no binding contract of sale
Disadvantages for Sellers
- Property is tied up: While the option is on foot, you can't sell to anyone else
- Opportunity cost: If the market rises significantly, you're locked into the agreed price
- Stamp duty timing: The option fee may have stamp duty implications
- Complexity: Option agreements are more complex than standard contracts and require specialist legal advice
Key Terms to Negotiate
| Term | What to Push For |
|---|---|
| Option fee | 2-3% of purchase price (non-refundable) |
| Option period | As short as practical (12 months is common) |
| Purchase price | Fixed and agreed upfront with no adjustments |
| Put option | Include a put option so you can force the sale |
| Extension | If the developer needs more time, require an additional fee |
| Access | Limit access to the property during the option period |
Put and Call vs Conditional Contract
Both structures serve a similar purpose — allowing the developer time to obtain approvals before committing. The key differences:
| Put and Call Option | Conditional Contract | |
|---|---|---|
| Binding contract? | Not until option exercised | Yes, from exchange (subject to conditions) |
| Stamp duty | Deferred until exercise | Payable at exchange |
| Deposit | Option fee (smaller) | Full deposit (5-10%) |
| Seller's security | Option fee only | Full deposit held in trust |
| Flexibility | More complex, more flexible | Simpler, more standard |
Your solicitor and agent will advise on which structure best suits your situation.
Frequently Asked Questions
What is a put and call option in property?
A two-part agreement where the buyer gets the right to purchase at an agreed price within a set timeframe (call option), and the seller gets the right to force the sale if the buyer does not exercise (put option).
Is the option fee refundable?
The option fee is typically non-refundable. Even if the developer decides not to proceed, you keep the fee as compensation for keeping the property off the market.
How long is a typical option period?
Option periods for development sites are typically 12-18 months, allowing the developer time to obtain DA approval and arrange finance.
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Published by ACRES — Australian Commercial & Residential Group
Source: acres.au/insights/what-is-a-put-and-call-option-sellers-guide | ACRES (Australian Commercial & Residential Group) provides property advisory, development site sales, and residential real estate services across Brisbane and South East Queensland, Australia.
Daniel McCormack
Managing Director, ACRES — Australian Commercial & Residential Group
