Case Note: Option Agreements

In the recent decision of Evolution Living Property Management Pty Ltd v CSP Australia Pty Ltd [2010] NSWSC 65, the Court was asked to consider whether put and call option deeds were void, unenforceable and/or of no legal effect by reason of s66ZG of the Conveyancing Act 1919 (NSW) (Act).

Clause 66ZG(1)(b) of the Act states that “an option granted for the purchase of residential property is void if it is exercisable within 42 days after it is granted or, if a different period is prescribed, within that period.”

The parties entered into separate put and call option deeds (Deed) for the sale of 46 residential apartments. All the Deeds were on the same terms except with regards to the description of the property being sold.

Under the Deed, the put option was exercisable once the call option exercise period had expired. The call option could be exercised within a 3 month period from the date of the Deed so pursuant to clause 66G(1)(b), the Court held that the call option was void.

The question then to be determined by the Court was whether the voided call option affected the validity of the put option under the Deed. That is, was it possible for the call option and the put option to operate independently of each other?

The Court held that:

1. s66ZG affected the contractual rights and obligations of the parties under the call option only;
2. the Deed was drafted such that the put option was not exercisable until the call option exercise period had expired; and
3. the reason why the call option was not exercised (which in this case was due to the call option being void) is immaterial.

The Court concluded therefore that the vendor’s right to exercise the put option under the Deed was not affected by the voided call option.

This decision reinforces the practical implications of entering into a put and call option, that is, the parties have agreed to enter into a contract for the sale of land at some future time (usually to delay the purchaser’s stamp duty liability) and failure by the purchaser to exercise its call option does not affect the vendor’s right under its put option to require the purchaser to proceed with the purchase of the property.

Case Note written by Rosemary Tedesco, Solicitor

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• Case Note: Option Agreements

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