What is PUT & CALL OPTION?
An option is a contractual right granted under a written agreement to buy and/or sell a property at a future date. New South Wales, strict requirements apply to option agreements in relation to the sale and purchase of residential property. Failure to take heed of these requirements can cause an option agreement to be void or able to be rescinded by the other party.
There are three types of option agreements with respect to property transactions:
- A call option allows a potential purchaser the right to compel the vendor to sell the property at an agreed price.
- A put option allows the owner of the property the right to compel the proposed purchaser to buy the property at an agreed price.
- A put and call option allows either party the right to compel the other party to complete the sale and purchase of the property.
What is the change?
From 19 May 2022, stamp duty is applicable on call and put option agreement entered into from this date. As a general rule, buyers are obligated to pay a certain amount of money depending on the applicable stamp duty rate. This is contingent on the amount of money paid by the buyer to enter into the Put & Call Option. Prior to home purchases made on May 19, 2022, homebuyers did not need to pay a stamp duty tax on the deposit (Put & Call Option) of their purchase.
Examples of how the new stamp duty works:
Lydia is interested in a beach house about $5,000,000,00. She decided to enter into a Put and Call Option and agreed to pay an option fee of $50,000.
Prior to May 19, 2022,
$5,000,000,00 x stamp duty rate = total stamp duty tax Lydia owes (after contract exchanges)
After May 19, 2022,
$50,000 (option fee) x stamp duty rate + $5,000,000,00 x stamp duty rate = total stamp duty tax Lydia owes (after contract exchanges)
References:
Put and Call Options. (n.d.). Ivy Law Group. Retrieved August 24, 2022, from https://ivylawgroup.com.au/property-conveyancing-lawyers-sydney/put-and-call-options/#:~:text=A%20call%20option%20allows%20a