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Welcome to The OMB Law Board, the podcast where legal insights meet practical advice. Hosted by Simon Bennett, Managing Partner at OMB Solicitors, this show delves into what you can expect when engaging with OMB Solicitors. Specialising in property law and commercial law, OMB also boasts dedicated teams for estate planning, contested estates, body corporate matters, litigation, and family law.
Each episode features in-depth discussions led by experienced team leaders, some with over 20 years of expertise. You'll gain valuable knowledge on initial consultations, cost assessments, timelines, and the importance of clear communication and confidentiality in legal matters.
Join us to break down barriers and navigate your legal journey with confidence. Tune in for expert advice, client stories, and tips on how to prepare for your legal needs. The OMB Law Board is your trusted source for all things legal.
00:00:06:05 - 00:00:29:10
Unknown
Welcome back to the OMB Law Board. I'm Simon Bennett, and today I want to talk to you about property options. I've got Bailey Bennett from our property law team here. So Bailey, welcome to the OMB Law Board. Lovely to be back. Thank you so much, Bailey. I've got a piece of property, and I've had a developer knock on my door offering me way over the odds and a thing called a put and call option.
00:00:29:12 - 00:00:55:19
Unknown
Now, it looks good to me because I think I'm getting a fantastic price and I get to hang onto my property for a while. So, so far, so good. What I have to worry about. That's exactly right, Simon. Sometimes it can seem a little bit too good to be true, but what we say to our clients is not to be scared, but to come to OMB to get your proper legal advice in respect of put and call option agreements.
00:00:55:21 - 00:01:21:03
Unknown
Okay, so let's drill down and find out what is a put and call or just a call option. How does it work and what are the risks and obligations on me as a landowner? Or if I'm a developer, how can I use these to my benefit? Bailey, let's get into it. Can you tell our listeners and viewers what is an option, and what's the difference between a put and a call or a put and call option?
00:01:21:03 - 00:01:42:12
Unknown
Well, yeah, a put and call option or options generally is whereby you enter into a contract with a purchaser. Or if you're actually purchasing yourself, you enter into a contract to buy a property but at a different point in time. So the option essentially is a period in time whereby one party, either the buyer or the seller under the different options,
00:01:42:12 - 00:01:46:07
Unknown
can force the other party to sell their property at a specific point in time.
00:01:46:08 - 00:02:07:23
Unknown
Now, where we usually see this as in respect of developers typically purchasing properties after wanting to do due diligence on the property to ensure that for whatever reason, if they want to build a duplex, or if they want to build a tower, that the property meets all the specific requirements prior to actually purchasing the property and paying over the actual full purchase price.
00:02:07:24 - 00:02:13:05
Unknown
Okay, so the difference between a put and call and just a call is
00:02:13:05 - 00:02:13:18
Unknown
that
00:02:13:24 - 00:02:15:19
Unknown
maybe you could explain it to me, but is
00:02:16:00 - 00:02:32:03
Unknown
one of them I'm bound to and the other one is just someone's option. Is that right. Correct. Yes. So typically within there's two main things type of agreements you'd have. One would be a put in call whereby a buy and a seller both have an option.
00:02:32:08 - 00:02:52:16
Unknown
So they both grant each other out. They both grant each other an option to purchase or sell the property at a later point in time. Okay. However, another variant is just having a call option or a put option generally. So a call option would be whereby one party, usually the buyer, has the only right to force the other party to sell the property at a later date.
00:02:52:20 - 00:03:11:18
Unknown
So that could be 12 months, 24 months, you know, three years, four years, whatever. You guys end up coming to an agreement. But that's one of the other terms that we usually see. So the general terminology is that a call option is an option for a buyer to purchase. Correct. And a good option is an option for a seller to force the buyer to purchase.
00:03:11:18 - 00:03:29:11
Unknown
That is correct. Yes. Okay. So we've we've got an understanding of what this option is. You've started to explain to us how they're used. Can you give us some examples of how you've seen them used in practice? Well, as I mentioned before, usually it's developers actually wanting to look at properties potentially
00:03:29:15 - 00:03:30:07
Unknown
subdividing
00:03:30:07 - 00:03:31:04
Unknown
redevelopment.
00:03:31:08 - 00:03:44:10
Unknown
of the other things we see is potentially builders actually going on to put and call for blocks of properties that they'll then subsequently build on and then sell after the fact once they've built it, but don't want to buy the actual land itself at this current point in time.
00:03:44:11 - 00:04:05:06
Unknown
Okay, we'll drill down on those a little bit. So the first one, a developer, quite often they might need to parcel together a number of blocks of land, and they might start putting options on the blocks subject to them buying all of the lots correct and or doing their due diligence. That is completely correct. Yes. And the way that the option works, for example, is that
00:04:05:08 - 00:04:11:02
Unknown
the developer has a period of time, the option period, say 12 months in which to exercise their option.
00:04:11:02 - 00:04:18:16
Unknown
And if they do, you go to a formal contract, correct. That is the case. So and if they don't and it's a put in call. Well, if
00:04:18:18 - 00:04:28:02
Unknown
a put in call sign. And what the other option would be is if the buyer doesn't use their right under the the put option, then you would have the call option subsequently.
00:04:28:04 - 00:04:53:20
Unknown
My apologies. The other way around, if the developer doesn't use their call option, then you as the seller would have your put option to force them into a contract. Excellent. Okay, I understand that. And then yes, you did mention the one where the A builder might come onto a land subdivision site and put say five blocks under option, correct, build their spec homes, etc. but then look to transfer the lot to the end buyer as a house and land.
00:04:53:21 - 00:05:11:18
Unknown
Correct? Yeah. And so what we say to ourselves and developers as well is don't be afraid of the put and call options or options generally, whilst it does seem like a little bit daunting when you do receive the contract and there's a substantial amount of terms in comparison to what your usual contract would have. Don't be scared. Come to us.
00:05:11:18 - 00:05:44:19
Unknown
Get the right advice. One of the options, one of the current option agreements that I'll give you a little bit of an understanding on an example recently, and how we've helped a client successfully go from an option agreement, which didn't unfortunately go through with our firm. Another block next door, who was also under an option contract. We received an excellent result for our client, allowing them to get a portion of their deposit quite substantial, in fact, whilst the other property that income to OMB and unfortunately they weren't able to access their deposit.
00:05:44:19 - 00:06:13:19
Unknown
So there's a really important point. I mean, whilst for property law experts, these documents are commonplace, correct. And we understand the implications, they are complex legal documents that you need expert advice on. Correct. One word nonrefundable. If that's not in your deposit release terms, then you may not be able to be entitled to your deposit. All it could take is the difference between one word knowing where that's needing to be, whether that's in the document itself.
00:06:13:23 - 00:06:31:15
Unknown
And obviously there's a substantial amount of other terms in there. However, we recommend coming to OMB, getting the proper legal expert advice in relation to any of your option agreements, because the difference could mean you're being able to access a deposit or the contract going through, or you're being stuck with something after the fact.
00:06:31:21 - 00:06:36:08
Unknown
It's so important, and they're wonderful tools for those who know what they're doing.
00:06:36:13 - 00:07:00:09
Unknown
And it's really important that you seek expert advice of people who are really familiar with these documents in their particular drafting. Bala, you've just given us an example where, you know, one party represented by OMB was able to make a substantial amount of money through good legal drafting and unfortunately, another party not so fortunate because the detail wasn't correct.
00:07:00:09 - 00:07:26:17
Unknown
Correct. Or the details do matter. And that's kind of where we pride ourselves in having the legal expert advice. So don't be afraid of these documents. Get expert and legal advice. Bailey and the OMB property law team are very experienced in these documents. They understand how their work and their drafting of the specific clauses will work to your advantage, be it as a seller or a buyer to suit your circumstances.
00:07:26:17 - 00:07:49:17
Unknown
Bailey. Thanks so much for educating us about these put and call option agreements. It's something that I think not a lot of people know about. Yeah. Thank you again for having me on the podcast. More than happy to go through it with anyone and go through any potential option agreements. I feel like as the viewers, hopefully you're a little bit more educated on what they actually entail, and then don't be scared to come and seek legal advice from my own.
00:07:49:17 - 00:07:58:17
Unknown
Be solicitors. So have you got any more questions about these matters? Drop us a comment below. We'll try and get back to you or contact the team here at OMB.