Offer with Call Option

Hi!

Until I hear back from my lawyer, I just wanted to check I am understanding an offer with a call option.

An offer of “10% non refundable deposit released to the vendor at exchange of call option
9 Months settlement” means:

10% non refundable deposit on exchange of contract
Deposit released to me on exchange of contract
9 month settlement
The buyer can choose to go ahead with settlement, or not go ahead with settlement with no penalty
I cannot force the buyer to settle

Thanks

Melissa

 

How much might the property go up in 9 months?

 

Good question, hard to say but it is a rezoned property and a developer making an offer so it will be a price I am happy to accept with the consideration of the longer settlement.

 

I would be interested to hear more about this.

In finance, for example currencies (which I am familiar with), you pay a "premium" upfront for a call option that has a strike price and a maturity.

So if a currency is 100 currently and the maturity is 3 months with a strike of 110, you might pay a premium of 1.5% of notional (let's say $1000).

So if you are selling me the option, I give you 1.5% of $1000 now and if the currency goes above 110 between now and three months it is 'in the money' and I will likely choose to exercise that option as it is profitable for me to do so. That is I will buy $1000 worth of the currency at a price of 110 from you and then sell that currency at what ever the going market rate is (e.g. 120).

My profits then will be (120-110)*$1000 - 1.5%*$1000.

In your situation:

(1) If you accept the option contract, can you collect and spend that 10% now? Or is it held in a third party trust account until settlement? Your wording sounds like you get that money now.

(2) Can the developer choose to settle earlier than 9 months? Or can they only settle at the end of 9 months and then pay the remaining 90%?

(3) Has the developer specified any condition under which the deposit could be returned?

 

impossible to come to any conclusions until you see the option contract and contract of sale, but it could be along those lines.

 

@Terry_w this question is definitely for you:

Vendor
Buyer (enters into Option contract with Vendor)
Developer (wants the Site from Buyer)

Buyer enters into a call Option agreement with a Vendor for their block (Site).

Buyer gets a DA approved for a block of units on the Site.

A Developer wants to by the Site from the Buyer (still under option).

Buyer agrees fee with Developer for Site.

Does the Buyer then need to call the Option and purchase the Site, thus paying Stamp Duty?

Or could the Buyer on-sell the Option?

Interested to hear how the transaction would work.

 

The holder of the option (optionee) could assign the option. stamp duty would apply

 

Thanks @Terry_w

Yes I just read this:

You must also pay transfer duty when you acquire land, or an interest in land, without buying it. For example:

• a declaration of trust
• a gift, or
• a transaction effecting a change in the beneficial ownership of a property.

 

An option holder isn't a beneficial owner of the property.

I would be careful about reading anything other than the law. If you have a look at the duties act, look for the definition of 'dutiable property' and you will find it includes options.

 

(1) It is my understanding I collect that 10% on exchange. I wouldn't do it if it was held in trust.

(2) I would allow the flexibility to settle anytime up to the 9 months.

(3) At this stage no and I wouldn't enter into an agreement that did.

The agent who approached me with this offer is trying to get me to sign up to an exclusive agreement which I won't. I offered to engage in an amended open agreement.