Hi there, Simon Bennett from OMB Solicitors. Today I wanted to have a chat to you about a document called a put and call option agreement, now you may have heard this term, but you may not fully understand what it does or why you might use it.
So a put and call option agreement generally refers to an agreement between two parties, and let’s take a property transaction, for example, where one party, the seller, might grant a put and call option to a buyer who’s looking for some flexibility.
They may be looking for some flexibility to conduct due diligence, they may be looking to on sell the property or something of that nature or even delay the actual contract date for one reason or another. Now, the put and call option agreement provides that flexibility, but it also provides certainty, and that’s really important.
So how does it work? Well, one party grants a call option, so the seller grants the buyer a call option, where the buyer can call on that option so they can affect that option to force the seller to enter into a contract, which is all predetermined and usually attached to the agreement to sell the property, if we’re dealing with a property transaction to sell that property to that buyer.
Now, if the buyer does not exercise that call option, the seller has certainty because they may exercise the put option which has been granted to them by the buyer and the put option is an option to force a sale of the property by the seller to the buyer. So the buyer will be forced to purchase the property.
So the certainty comes in that if one of the parties requires the transaction to proceed and enter into a formal contract, it will happen. That is, either the buyer by way of the call option or the seller by way of the put option, and only in the event that neither party wished the transaction not to proceed would it not proceed.
So there’s the certainty and the flexibility is until such time as that option is exercised, we do not have a formal contract, and as I said, there is a number of different benefits and uses for that and if you’d like to understand a little bit more about how you might use a put and call option, give us a call at OMB property team and we’ll be pleased to give you a hand.