Buying And Selling Property Under An Option Deed In Queensland

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Home > Blog > Buying And Selling Property Under An Option Deed In Queensland
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05/15/2024

When considering buying or selling property under an option agreement in Queensland, it’s crucial to understand what an option deed entails, and the key considerations involved. Buying and selling property via an ‘option deed’ has gained popularity recently, particularly in a growing property development market.

Option deeds provide buyers with flexibility which is ideal for developers and future investors who wish to conduct due diligence investigations before committing to purchase.

What Is An Option Deed?

A call option deed is a legally binding agreement between a buyer and a seller granting the buyer the exclusive right to purchase the property within a specified period at a predetermined price on certain terms and conditions.

The deed may contain a ‘call option’, a ‘put option’ and/or a ‘put and call option’:

  • Call Option: provides the buyer with the ability to compel the seller to sell the property;
  • Put Option: provides the seller with the ability to compel the buyer to purchase the property; and
  • Put and Call Option: provides the buyer with the ability to compel the seller to sell the party. If the buyer does not exercise this right, the seller may then compel the buyer to purchase the property.

Most arrangements will constitute a call option alone or a combination of a put and call option. The parties will generally reach an agreement through a course of negotiations which are then documented in the deed.

The deed generally will contain a due diligence condition that allows a buyer to access the land during the option period to carry out investigations and to lodge a development application with the relevant authority.

The contract for the sale and purchase of land is attached to the deed and contains all relevant information and disclosure documentation for the property.

Pros And Cons

Pros:

  • Flexibility: An option deed provides flexibility for both buyers and sellers. Buyers have the opportunity to secure the property without committing to the purchase immediately and Sellers can secure a buyer without the pressure of finalising the sale quickly.
  • Financial: An option deed can assist in the management of cash flow by securing a price for a property now, which can be funded at a later stage.
  • Time: An option deed provides a landowner control over the timing of selling a property.
  • Price Protection: Locks in the purchase price. This is advantageous for buyers and sellers as it provides protection from changes in the property market during the option period. This can be advantageous to buyers wanting to secure a lower price in a rising market.
  • Time for Due Diligence: Provides time for buyers to arrange financing, conduct inspections, and perform due diligence on the property. This reduces the risk of unforeseen issues arising after the purchase.

Cons:

  • Deposit Requirement: Most option deeds require payment of a non-refundable deposit/option fee, which may be forfeited if the option is not exercised. 
  • Limited Market Exposure: Limits the seller’s ability to market the property to other potential buyers during the option period. This may result in missed opportunities or delays in selling the property. 
  • Time: Option periods are generally long extended periods of time and can range from anywhere between 6 months to 3 years. Option deeds are not suitable for Buyer and Seller’s wanting to complete a quick transaction.
  • Cooling Off: There are generally no cooling-off rights available to the purchaser once an option is exercised and the contract becomes immediately binding.
  • Transfer Duty: An option deed is considered to be a dutiable transaction and transfer duty is payable on any option fee when the option is exercised. Buyers should obtain advice regarding their stamp duty or transfer duty obligations under the option arrangement.
  • Legal Complexities: Option deeds are more complex; the parties must consider a range of contingencies that could arise between signing the deed and completion of the sale/purchase of the property. Accordingly, both parties will need to seek detailed legal advice.

Exercising An Option

Parties are generally required to exercise an option in writing and strictly in accordance with the deed. Once the option is validly exercised a contract immediately comes into effect. Once the option deed has been exercised both the Buyer and Seller are ‘locked in’ and need to be ready to complete the sale. It is important to note that any transfer duty liability becomes payable once the option has been exercised.

Conclusion

Buying or selling property under an option deed can offer both advantages and challenges. It’s essential to carefully consider your objectives, conduct thorough due diligence, and seek professional advice to navigate the process effectively.

We recommend contacting our office to discuss your specific needs and circumstances further. Our experienced conveyancing team can provide tailored guidance and support to ensure a successful outcome, speak to Cairns Conveyancing Solicitors today.