KP Carmody & Co

A put and call option is an agreement between the potential vendor of a property (called the grantor) and a prospective purchaser of that property (called the grantee). It is a useful arrangement for a variety of situations where it may not be prudent to enter into a binding contract for the purchase of property immediately.

In the put and call option:

• The grantor gives the grantee an option to buy the property from the grantor (called a call option); and simultaneously

• The grantee gives the grantor an option to sell the property to the grantee (called a put option).

This allows either the grantor or the grantee to cause the formation of a legally binding contract at a later date. There is no particular form for put and call option deeds or agreements. There is usually (but not always) a fee payable on execution of the option deed or agreement. Commonly the option fee is credited towards the deposit if the call option is exercised in time. If not exercised the fee may be forfeited to the grantor.

The terms of an option deed or agreement should be clear and precise. For instance if it is intended that a third party purchaser may be nominated, the deed or agreement should make it clear that such an arrangement is not meant to be an “assignment” (unless it is so intended) as such an arrangement may have severe stamp duty consequences.

Generally to effectively exercise the option there should be strict compliance with the procedure set out in the deed or agreement. Option deeds or agreements are often a valuable commercial arrangement but care should be taken in their drafting and in their ultimate exercise.

The advice in this article is general in nature and you should consult your solicitor for specific advice