Offer via way of Call option

Discussion in 'The Buying & Selling Process' started by Philbie, 8th Oct, 2021.

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  1. Philbie

    Philbie Member

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    adelaide
    Hi all,

    Just received a draft "Call Option Deed" for my property and I want to know if anyone here can give me some basic guidance or if a solicitor is my best chance to find out whether I am getting the raw end of the deal.

    Background....
    I have been approached by a Buyer's Agent acting on behalf of a developer. They are interested in both mine and the neighbouring property - they are looking to build an early learning Centre.
    I had no intention of selling, but the property is old and falling apart (poor foundations) but told them if the offer was enticing enough, I could be convinced to sell and then use the money to buy another house.

    The 1st offer came back below what I could sell at privately, 2nd offer came back with a good price which i am willing to accept (it is approx. 25% -30% premium) to what I could sell it privately.

    I have received a draft "Call Option Deed" to review. In the deed schedule it states the following

    Agreed terms
    - Purchase price $X, exclusive of any GST - do i pay GST or do they pay GST? I am a rent-vester, so this is an IP of mine which i have held for a number of years.
    - Deposit 10%, less the option fee
    - Settlement - 3 months after the date of the land contract.
    - Option Fee: $1

    Commencement date - date that Grantee has notified grantor that both the due diligence condition and the planning approval condition have been satisfied or waived

    Note..
    If the due diligence condition has not been satisfied or waived within 4 months of the date of this deed, the Grantor may agree in writing to terminate the deed,
    If the planning approval condition has not been satisfied or waived within 12 months after the date the Grantee has notified the Grantor in writing of the satisfaction or waiver of the Due Diligence condition, the Grantor may terminate the deed.


    My thoughts.....
    If i agree, am I basically saying "pay me 25-30% more than what my property is worth today and in exchange for this premium, the developer has 12 months to organise due diligence and get council approval, and if that goes ahead they can buy my property.
    I dont think it sounds like a bad deal. The only way it could be a bad deal is if the property market increases by more than 25% in the next 12 months. Am i missing anything?

    Many other things to consider such as capital gains tax and what i plan to do with the money if it all goes ahead.

    Thank for in advance for any guidance.
     
  2. Trainee

    Trainee Well-Known Member

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    If the deed is terminated, what happens to the deposit?
     
  3. Philbie

    Philbie Member

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    Good question. The option fee of $1 is paid up front which they forfeit if the deed is terminated... Woopy do.
    The Deposit is only paid if they call the option and go ahead with the purchase. I would assume standard term, but good question to ask them.
     
    datto likes this.
  4. lixas4

    lixas4 Well-Known Member

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    I would request the option fee of $1, be increased to cover your costs, ie your lawyer and accountant fees. This way, if they decide not to proceed you are not out of pocket.

    Let them know the reason, its pretty standard to make sure the landowner isnt out of pocket in these types of deals (if requested).
     
  5. Philbie

    Philbie Member

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    Great idea, thank you! I assume I would give them an estimate of these fees and we can set that $ amount as the option fee.
     
    lixas4 likes this.
  6. GreenTreeFrog

    GreenTreeFrog Well-Known Member

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    Definitely definitely get a solicitor to review and advise you all your options and the contents of the agreement. Worth every penny. I have just been through all this - in NSW.

    Is there a due diligence period before they enter the option? It sounds like a 4 month due diligence period? They can walk away at the 4 month mark, but you have to take it off the market for that period? I would be asking for a non refundable amount of $$ for that due diligence period, released to you upon signing.

    Developers are known to renegotiate after that due diligence has passed and try to lower the agreed price before they enter the call option, saying they found out things during the dd period.

    I would be asking for the 10% deposit up front and released to vendor, non refundable, if you enter the call option. There has to be some commitment from them. They have done their due diligence.

    Would they consider a Put and Call? At least then you also have the choice to make them buy it at the end of the option period. With a Call Option, they have all the power to decide to buy or not.

    You can also request in the contract that any DA is passed to you if they do not exercise the call option.

    Will they be putting a caveat over your property? If so you are relying on them to remove this at the end of the option period if they decide to not exercise the option.

    Do you get on with the neighbours? Same size properties? Have you discussed the offer with them? What do they think?
     
    Last edited: 8th Oct, 2021
    Anchor likes this.
  7. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Sounds like you would let someone tie up your property for $1 for a length of time and then they might not buy it.
    You might only benefit if they do buy it which is a long shot. Ask for 2% as an option fee and you want to see the contract that is connected to the option as well.
     
  8. Philbie

    Philbie Member

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    So many things to consider (and demands I could ask of them). The agent they are using are trying to be "mates" with us, saying he will look after us. Sounds like that might not be the case. Thank you, appreciate your time.
     
  9. Philbie

    Philbie Member

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    When you put it that way, i think 2% option fee is more than reasonable. Will do, thank you!
     
    Terry_w likes this.
  10. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    He can't represent both sides - not only is it illegal it's just not going to happen. He is being paid by the developer and will not act in your best interests.
    If you are on good terms with the neighbour you should stand together on your terms and be transparent with each other so you make a strong and decisive opponent.
     
    GreenTreeFrog likes this.