Know your options – cooling-off periods under option deeds
Option deeds and developers
Option deeds are a tool of choice for developers seeking to amalgamate sites for development. Ultimate flexibility for a developer is obtained by entry into a call option only, however where a vendor requires an ultimate sale, often both a put and call option will be required.
Where put options are related to residential properties, the NSW Supreme Court has recently examined whether a purchaser’s right to rescind pursuant to a cooling off period permitted at law is lost by virtue of the contract for sale having resulted from a put option.
The relevance of the case
BP7 Pty Ltd v Gavancorp Pty Ltd (2021) NSWSC 265 is of relevance to parties who enter into a binding agreement for the sale of residential property by way of put and/or call option. The key issue decided was whether a put option fell within the meaning of option to purchase. If so, the exemption to a cooling-off period applies.
In the circumstances where a grantee of an option chooses to not exercise its call option (for example, where a developer has amalgamated a site by way of option however has not had a suitable development consent issued, or is otherwise unsatisfied with its due diligence enquiries and therefore does not see a project as ultimately feasible), and the grantor subsequently exercises its put option during the permitted put option period, the exemption under s 66T(d) of the Conveyancing Act 1919 (NSW) (the Act), which waives the right for a cooling- off period under a contract made in consequence of the exercise of an option (other than an option which is void), does not apply to a contract resulting from a put option.
BP7 (as grantee and subsequent purchaser under the resulting contracts) sought to rescind 14 contracts of sale, in reliance on its ability to cool off under s66U the Act. In addition, BP7 sought declarations to the effect of the contract being rescinded to require a refund the call option fees, (less 0.25% cooling off fee payable under the Act).
The defendants argued in pursuant to s66T(d) of the Act, which relevantly states that there is no cooling-off period if the contract is made in consequence of the exercise of an option to purchase property.
Is a put option really an option to purchase?
The primary issue before the court was to construe the meaning of option to purchase pursuant to s66T(d), and whether put options fell within this construction.
Justice Darke interpreted the meaning of option to purchase property, by its natural and ordinary meaning. That is, an option is something that provides a choice – a put option requires a party to purchase (and is therefore not a choice to do so). By extension, it was held that only an option to purchase property (being a call option) fell within the usual and ordinary meaning of option.
The court rejected the defendant’s contentions that the word option should be interpreted as an “option to compel a purchase”, “option leading to a purchase” or “option pertaining to a purchase”. Ultimately, the court held that a cooling off period does apply, and affirmed the BP7’s right to rescind, and ordered a refund of the call option fees paid (less the statutory 0.25% cooling off fee).
Can grantors mitigate the risk of rescission?
Given this clear decision, it is important that grantors carefully review their options on entry with their legal advisor to ensure that the risk of rescission is mitigated. Although any advice may be dependent upon the circumstances existing between the parties, a grantor could require certificates of waiver of any cooling off rights pursuant to s66W of the Act, in addition to a certificate waiving cooling off rights under an option pursuant to s66ZF of the Act.
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