There are many different ways to buy a property, and you may be quite familiar with the traditional approach. However, you may have other factors to take into consideration before you make your next purchase and may want to consider whether an option agreement would work well in your case. What is this, when can it be used and what should you do?

Reasons for an Option Agreement

Imagine a situation where the tax element was a considerable issue. You may want to defer your liabilities associated with a sale until a time that is more convenient for you from a practical perspective. In other words, you may want to put off the tax payment until the next financial year, to take into account your capital gains position. In this case, you might consider entering into an option agreement at the outset.

On the other hand, you may want to reserve the right to buy a property (or lock in the option) at a certain price, but subject to caveats. You may want to ensure that you can get approvals to develop the land or sell it on to a third party and in either case, you may be able to enter into an option agreement.

Understanding the Agreement

Usually, an option agreement comes in two different parts – the option agreement itself and the contract of sale. The first part details the terms under which the party may be able to exercise the option, and the sale contract is typically an annex. This will include all the fine detail about the property, its purchase price, the length of the contract and the deal as agreed. The sale contract only becomes valid when somebody exercises the option.

Due Consideration

Both parties have to agree to this approach and, quite frankly, there has to be reasonable consideration on both sides. As an example, the buyer may be required to pay a separate fee if they are to be granted a call option against a property. After all, the seller will be taking this property off the market for a predetermined amount of time and may not be guaranteed a sale in any case.

Assessing Your Situation

It is important to look carefully before deciding whether an option agreement is the right approach for you. There are various tax applications, and other legal fees may be payable, so you should talk with your conveyancing lawyer before going much further.