Legal Comment by Mark Illidge of Hinterland Lawyers

June 2005

Up until recently the property market had been widely regarded as a seller's market.  Sellers were in a position to dictate terms to buyers.  30 day cash contracts with full 10% deposit were not uncommon.

With the market appearing to be softening, sellers can usually no longer dictate such favourable terms and buyers have the opportunity to impose conditions to suit their requirements and give them more legal protection and flexibility.

We are starting to see experienced buyers use options to acquire property.  The option allows the buyer to tie up property for certain periods of time, usually to enable some form of due diligence to be conducted regarding the subject property.  It also delays the trigger of the liability for stamp duty.

The use of an option is particularly advantageous in acquiring proposed development sites or multiple sites where the development site is not as valuable to the buyer unless all owners of the multiple sites agreed to sell.

During the due diligence the buyer can enquire with the local authorities and even make applications for town planning approval without any fear of being contractually bound to proceed with the purchase.

Another important aspect of the option is that it should allow the buyer to sell the subject property on, by nominating a third party to exercise the option.  This also has significant stamp duty benefits for the buyer as the liability for stamp duty will be passed on to the third-party who becomes bound under the contract.

There are a number of formalities that are required to be complied with to ensure that the option agreement is binding and enforceable.  Legal advice should be sought about the drafting of an option agreement.

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