In the recent case of BP7 Pty Ltd v Gavancorp Pty Ltd  NSWSC 265, the New South Wales Supreme Court (Court) has confirmed that the statutory cooling off period applicable to contracts for the sale of residential property will still apply where a contract is formed as a result of the exercise of a put option. Although the decision is only directly applicable to New South Wales contracts, it may shed some light on the operation of similar cooling off regimes in other jurisdictions.
The Conveyancing Act 1919 (NSW) (Conveyancing Act) provides that every contract for sale of a residential property will be subject to a cooling off period, which is ten business days for off-the-plan contracts and five business days for other contracts. Where a contract for the sale of residential property is rescinded during the cooling off period, the purchaser must forfeit 0.25% of the purchase price to the vendor.
The Conveyancing Act also provides that no cooling off period will be available to a purchaser where a contract is made ‘in consequence of the exercise of an option to purchase the property’.
Background to case
The plaintiff, BP7 Pty Ltd (BP7) entered into numerous put and call option deeds with the defendants, who were each owners of residential property in a strata plan. The put and call option deeds required BP7 to make payment of call option fees which would be applied to the deposits under the contracts for sale and granted the various defendants a put option to require BP7 to purchase their properties. The put options were exercised by the defendants and contracts of sale were entered into. BP7 sought to rescind the contracts of sale within the relevant statutory cooling off period and demanded repayment of the call option fees less an amount equal to 0.25% of the purchase price under the resulting contracts.
A dispute arose regarding the plaintiff’s ability to rescind the contracts for sale under the cooling off period provided the Conveyancing Act. The Court was required to determine if contracts entered into as the result of an exercise of a put option are made ‘in consequence of the exercise of an option to purchase the property’.
The Court held that:
- the ordinary and natural meaning of the expression “option to purchase” is an option able to be taken (by the holder of the option) to purchase certain property”;
- a call option is an option to purchase property;
- a put option is not an option to purchase property, but rather an option to sell property or require another person to purchase property.
Accordingly, the Court determined that, as the contracts between BP7 and the defendants were entered into as a result of the exercise of a put option, the exemption under the Conveyancing Act regarding ‘the exercise of an option to purchase the property’ did not apply and that BP7 was entitled to rescind the contracts during the statutory cooling off period. As a result, BP7 was also entitled to recover the call option fees it had paid, less the 0.25% it was required to forfeit in accordance with the Conveyancing Act.
Implications and Next Steps
The decision of the Court means that vendors selling residential property in New South Wales will need to be aware that a purchaser will still be able to escape a contract using the statutory cooling off period where a put option has been exercised. This could have implications for vendors seeking to rely on executed put and call options for the purposes of finance.
Although the decision of the Court dealt with New South Wales legislation, similar issues may arise in South Australia and Victoria as their respective cooling off regimes also only exclude contracts arising from ‘an option to purchase’ or ‘an option to buy’ respectively.
If you have any questions or concerns related to the application of cooling off periods or your rights under a put and call option deed, please do not hesitate to contact us.