A put & call option is actually two agreements in one. Essentially, it is an agreement that gives the buyer and the seller a choice to buy and sell land at a future time, on agreed terms.

A call option is a right issued by the seller of land to the buyer, that requires the seller to sell the land to the buyer at a future time.

A date sometime in the future is specified in the call option, that requires the buyer to notify the seller, on or before that date, whether the seller will be required to sell the land on the terms agreed.

A put option is the opposite to a call option – it is a right issued by the buyer of the land to the seller, that requires the buyer to buy the land from the seller at a future time.

As with a call option, a date sometime in the future is specified in the put option, that requires the seller to notify the buyer, on or before that date, whether the buyer will be required to buy the land on the terms agreed.

A put & call option is often used to sell undeveloped or partially developed land. The two most common types of situation in which a put & call option is used, is between:

• a landowner who owns land (and may or may not already have development approvals in place) and doesn’t wish to develop it, and a developer who sees an opportunity for developing a particular type of parcel of land; and

• a developer who specialises in developing land to the point of individual lots (that is, the developer obtains development approvals, carries out earthworks, constructs roads and services, and creates individual lots) and a developer specialising in housing & land packages, industrial estates or so on.

There are a number of benefits to entering a put & call option, which is why they are often used to develop land.

Some of these benefits are:

• the terms on which the land is to be sold and bought are already agreed on;

• importantly, the price for the land is already agreed upon, so even if the put & call option takes a number of years to be realised, market factors do not affect the price to be paid for the land;

• it allows the buyer to undertake due diligence for the land, which is particularly important if the buyer intends to apply for development approvals – it means that if the necessary development approvals cannot be obtained, then the buyer usually wouldn’t exercise the option;

• it gives rise to a caveatable interest in the land.

A put & call option is entered into by way of a Deed, and certain requirements must be met in order for the Deed to be valid.

It should be noted also that there are stamp duty considerations for a put & call option.

If you would like further information on put & call options, or developing land generally, please contact Karen to see if we can assist you.

The content of this article is intended in the nature of general information, and cannot be relied upon as legal advice. You should seek specialist advice about your particular circumstances.