Put and Call Option Agreements: The Key Considerations
What is it?
A put and call option agreement is an agreement that one party will purchase property from the other party by a designated date. In most put and call option agreements, the purchaser may “call” the seller to sell the property, or the seller may “put” the purchaser to purchase the property at any time prior to the designated termination date.
Application for small business people
The terms of a put and call option agreement will vary significantly depending on the situation that it is governing. However, the main purpose of these agreements is to give the parties certainty that the property sale will take place at some time in the future, without them having to enter into a strict contract of sale immediately.
One advantage of a put and call option agreement is that it guarantees that a contract will come into existence at a later date. This can be very useful for small business people who, possibly for capital gains tax reasons, may want to delay a particular transaction.
The purchaser also has the advantage of additional time and flexibility than they would if they were required to enter into a standard contract of sale immediately. Depending on the terms of the put and call option agreement, the purchaser may be able to transfer their rights to another party (a nominee) if they decide not to go ahead with the purchase themselves. This is a much cheaper and easier option than having to re-sell the property.
6 key things to consider
When entering into a put and call option agreement, it is important to consider the following:
- Do any conditions have to be satisfied by the seller before the option is exercised?
- Do any conditions have to be satisfied by the purchaser before the option is exercised?
- What will happen if these conditions fail to be met?
- What is the maximum time period for the agreement?
- Is there any deposit payable by the purchaser?
- What are the capital gains tax and stamp duty implications of the agreement?
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Joe Kafrouni, Accredited Specialist in Business Law, Kafrouni Law
Disclaimer: This article is general information only and is not legal advice. Before acting on it, get advice on your own circumstances. To the extent the law allows, Kafrouni Law accepts no liability for any loss arising from reliance on it. This article is the copyright of Kafrouni Law.
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