A recent Supreme Court decision of BP7 Pty Ltd v Gavancorp Pty Ltd [2021] NSWSC 265 highlighted an unintended anomaly in the conveyancing legislation in relation to put options, which has led to considerable uncertainty in the security of put and call options.
In that case, the Court considered that “option to purchase property”, as described in the Conveyancing Act 1919, should be given its ordinary meaning – that is, an option able to be taken (by the holder of the option) to purchase certain property. Unfortunately a put option does not fit into this definition as it does not involve the exercise of a choice to purchase property (but rather to compel someone to sell property).
So the unfortunate situation arises as follows:
- Under section 66S of the Act, there are cooling-off rights for contracts for the sale of residential property unless an exception under section 66T applies;
- Section 66T says that there is no cooling-off period if the contract is made in consequence of the exercise of an ‘option to purchase’ property;
- The Court in Gavancorp characterised a put option as not an “option to purchase”; and
- Therefore the exemption does not arise and the purchaser has “cooling off rights” under section 66S.
To rub salt in the wound, in addition to the Purchaser being able to exercise the cooling off rights to withdraw from the contract (arising from the put), the purchaser was entitled to a refund of the deposit paid
The Supreme Court decision in Gavancorp has cast some uncertainty as to contracts arising from put options.
Thankfully, the proposed Conveyancing (Sale of Land) Regulation 2022 which will replace the Conveyancing (Sale of Land) Regulation 2017 when it ends on 1 September 2022 is seeking to address this uncertainty.
Section 17 of the proposed Regulation addresses this issue by confirming that a contract arising from an option to compel a purchase is not subject to the cooling off period in s66S of the Act, extending the exemption provided in s66T.
Morabito Legal is currently submitting our support for this amendment with the Office of the Registrar General and we will advise you of the amended regulation in due course.
In the interim, we suggest that all put options for residential land have the holder of the put option provide a signed s66W certificate on exchange.
For any further information regarding this article please call Dominic or Paul on 02 9261 0222 or email dominic@morabitolegal.com.au or paul@morabitolegal.com.au.
