Options over land

Practical Law ANZ Toolkit w-038-8854 (Approx. 6 pages)

Options over land

by Practical Law Commercial Real Estate
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A toolkit to guide users through Practical Law's resources relating to option transactions (in particular, call options) involving land.

About this toolkit

This toolkit is a guide to Practical Law's resources relating to option transactions (in particular, call options) involving land. It includes practice notes and checklists regarding the legal and practical issues to consider as part of option transactions involving land, and the key transaction documents to be entered into and notices to be provided by the parties to an option transaction.
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Fundamentals of options over land

Options over land can be a very useful tool for the parties who are proposing to buy or sell land, especially in a property development context. Call options are the most common type of option arrangement in commercial property practice and may be used by a developer (as the grantee) to have the right (but not the obligation) to compel a landowner (as the grantor) to sell its property.
The entry into an option transaction, instead of a traditional contract for sale of land or a pre-emptive agreement, requires careful consideration of various legal and commercial issues, such as:
  • The requirements for the grant and exercise of an option.
  • Dealings with the option, such as the grantee assigning the option or nominating another party to be the purchaser under the resulting contract for sale.
  • The duty and income tax consequences of option transactions.
For a discussion of the key legal and practical issues in transactions involving call options over land, see Practice note, Options over land.
The entry into an option transaction may produce favourable tax and duty implications, such as allowing transfer duty to be deferred on the purchase price of the property. For an overview of the main duty implications of transactions involving options to acquire land, including the grant of an option, exercising an option and the transfer of an option, see Practice note, Duty implications of common property transactions: Options to acquire land.
Entry into an option to purchase land and subsequent completion of the sale of that land on exercise of the option involves various steps and considerations for a landowner and developer. For:

Statutory disclosure obligations in option transactions

The conveyancing legislation in most states and territories prescribes mandatory disclosures, required conditions and warranties, and other rights and obligations (such as cooling-off rights) in relation to the sale of land generally, including in the context of options to purchase land and the contracts that are created on the exercise of the option.
There are currently no statutory disclosure obligations for the sale of land in the Northern Territory and Tasmania.
For an overview of the disclosure requirements under the conveyancing legislation in each jurisdiction that expressly applies to options to purchase land or the contracts for sale of land that are created on the exercise of those options, see Practice note, Disclosure requirements for conveyancing transactions in Australia.
For more detailed information about these disclosure requirements in each state and territory (other than the Northern Territory and Tasmania), see:

Call option documents

To create a valid call option, the transacting parties need to comply with:
  • The common law requirements to create the option, being that:
    • the grantor has the capacity to grant the option and deal with the subject land;
    • the elements to create a binding contract have been satisfied; and
    • the duration of the option does not contravene the rule against perpetuities (if applicable).
  • The statutory requirements in a jurisdiction for the option to be in writing and signed by the grantor.
These requirements are typically satisfied and documented by the parties entering into an agreement for the call option or, in the absence of consideration, a deed.
For a standard form call option deed over land where the grantee pays a non-refundable option fee, see Standard document, Call option deed over land.
For a checklist containing a list of the key provisions that are typically contained in a call option deed, see Checklist, Call option to acquire land: key provisions.
Under a call option deed, the grantor and grantee may be required to provide various notices to the other party in order to validly exercise certain rights under the deed. For:
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