Why Put & Call Options?

There are 3 main reasons why a purchaser may wish to use a Put & Call Option where settlement may be delayed. These are:

1. Deferring the payment of stamp duty in the case of commercial property or residential “off the plan” sales where settlement is likely to take place more than 15 months from the date of the Contract.
2. Where the purchaser is not sure what entity will purchase the property.
3. Where the purchaser wishes to on- sell the property before completion without having to pay stamp duty on the contract and complete the purchase himself.

Call Option Assignment Duty

As a result of the introduction of Call Option Assignment Duty by the State Revenue Legislation Amendment Act 2005 (“the Act”) which became law on 27 June 2005, the third use above has been significantly curtailed.

The effect of an assignment of the Call Option component of a Put & Call Option, is to allow the assignee to exercise the Call Option at the appropriate time and thereby replace the assignor as the purchaser in the Contract. Until now, the stamp duty payable on an assignment of a Call Option in this situation was ad valorem duty on the assignment consideration only.

Now, where a Call Option is assigned, in cases where there is also a Put Option granted to the grantor from the grantee (or an associated person of the grantee), full ad valorem duty at normal conveyancing rates will be payable on:
a. the assignment consideration;
b. the dutiable value of the property the subject of the Call Option; and
c. the dutiable value of the property the subject of the Contract resulting from the exercise of the Put & Call Option.

What documents are affected?

The assignment of any Call Option after 27 June 2005 regardless of when the Call Option was entered into.

Who is liable to pay the Call Option Assignment Duty?

The assignor of the Call Option.

How much is the duty?

Call Option Assignment Duty is charged at normal conveyancing rates on the greater of:

• the sum of the assignment fee and the purchase price for the property once the Call Option is exercised; and
• the unencumbered value of the property.

When is the duty payable?

Within 3 months of the assignment of the Call Option

Will related persons be exempt?

The purchaser of a property pursuant to a Put and Call Option Deed which is a related company to the grantee will usually be exempt from paying the Call Option Assignment Duty pursuant to section 18(3) of the Duties Act, however whether the related company or person complies with section 18(3) should be checked before proceeding with any assignment.

Nominations

Some Put & Call Options contain a provision where the grantee can nominate another person or entity to exercise the Call Option. On the face of it, this is not an assignment, however section 106 of the Act deems a nomination to be an assignment for the purposes of the liability for Call Option Assignment Duty if:

• there is a relinquishing of the grantee’s right to be the purchaser for valuable consideration; and
• there is a grant of a call option to the end purchaser.

Careful consideration will need to be given in future to the drafting of Put & Call Options and also to the assignment of and nominations under Call Options in existence at 27 June 2005.

For any further information please contact Jennifer Graves.