Cooling off periods in residential Put and Call Options: another pitfall to avoid

Options over land are riskier to prepare than a sale of land contract.

Some of those risks were discussed in our earlier article on our website, titled "Vendors Rescinding Options: How Compliant Paperwork is Indispensable".

The recent decision of BP7 Pty Ltd v Gavancorp Pty Ltd [2021] NSWSC 265 highlights another often overlooked pitfall particular to residential options: that pitfall being the application of cooling off periods in the contract triggered by an option.

Many lawyers/conveyancers remember to obtain a s66ZF certificate from the purchaser's lawyer/conveyancer.

But as was held in BP7 Pty Ltd v Gavancorp Pty Ltd, this s66ZF certificate only waives the cooling off period in the Call Option, and not the Put Option.

An additional certificate is needed to waive the cooling off in the Put Option; namely a 66W certificate.

If the purchaser's lawyer/conveyancer does not provide a 66W, then the cooling off provisions apply to the contract when the contract is triggered by the Put (rather than Call) Option.

• What is a Put and Call Option?

An option over land is an agreement which grants a right to one part to compel the other party to enter into a contract for the sale of land.

The contract itself will be annexed to the option.

A Call Option gives the purchaser the right to compel the owner of land to enter into the sale of land contract.

The Put Option gives owner of the land the right to compel the purchaser to enter into the sale of land contract.

They can be combined into a Put and Call Option, with the Call Option period ordinarily being first in time. The Put Option period then starts after the expiration of the Call Option, if the Call Option was not exercised.

• BP7 Pty Ltd v Gavancorp Pty Ltd

BP7 entered into 14 Put and Call Options over lots in certain apartment blocks in Gerrale Street, Cronulla.

Gavancorp is the owner of one of those lots. The owners of the other lots were all listed as co-defendants in this case.

The Call Options were for a period of 18 months from the date of Option, and the Put Options were for a period of 10 business days after the expiry of the Call Option period.

BP7 was required to pay Call Option fees in each matter of 10%, broken into two tranches of 5% each. The first instalment was paid on exchange of Option, and the second instalment paid 6 months later.

The Put and Call Options were exchanged on 4 September 2018. BP7 paid both tranches of the Option Fees in time.

The Call Option period was due to expire 3 March 2020.

Perhaps due to the economical uncertainty being then caused by covid (no such reason is given in the case) BP7 never exercised their Call Option.

Gavancorp and the other vendors decided to exercise their Put Options on 5 March 2020.

Gavancorp and the other vendors were then met with a rebuttal: BP7 asserted they had cooling off rights under the contract which had just been enlivened, and that BP7 was hereby rescinding the contracts pursuant to their cooling off rights.

Worse still, BP7 demanded the refund of the 10% Option Fees, less the 0.25% that they would forfeit pursuant to their cooling off rights.

• Decision

His Honour Darke J. analysed the Conveyancing Act 1919 (NSW) in detail, and held that in order for the purchaser (BP7) to have waived their cooling off rights under the Put Option, a 66W Certificate would have to have had been issued by BP7's solicitor or conveyancer.

As there was no 66W provided, cooling off rights were not waived.

This decision would have come as a shock to the owners, but it is a useful decision for solicitors acting on behalf of residential vendors to insist on both a 66ZF Certificate and a 66W Certificate to waive the cooling off rights of the purchaser under both the Call Option and Put Option respectively.

For expert legal advice, contact Maclarens Lawyers on 96823777.

Options over land are riskier to prepare than a sale of land contract.

Some of those risks were discussed in our earlier article on our website, titled "Vendors Rescinding Options: How Compliant Paperwork is Indispensable".

The recent decision of BP7 Pty Ltd v Gavancorp Pty Ltd [2021] NSWSC 265 highlights another often overlooked pitfall particular to residential options: that pitfall being the application of cooling off periods in the contract triggered by an option.

Many lawyers/conveyancers remember to obtain a s66ZF certificate from the purchaser's lawyer/conveyancer.

But as was held in BP7 Pty Ltd v Gavancorp Pty Ltd, this s66ZF certificate only waives the cooling off period in the Call Option, and not the Put Option.

An additional certificate is needed to waive the cooling off in the Put Option; namely a 66W certificate.

If the purchaser's lawyer/conveyancer does not provide a 66W, then the cooling off provisions apply to the contract when the contract is triggered by the Put (rather than Call) Option.

• What is a Put and Call Option?

An option over land is an agreement which grants a right to one part to compel the other party to enter into a contract for the sale of land.

The contract itself will be annexed to the option.

A Call Option gives the purchaser the right to compel the owner of land to enter into the sale of land contract.

The Put Option gives owner of the land the right to compel the purchaser to enter into the sale of land contract.

They can be combined into a Put and Call Option, with the Call Option period ordinarily being first in time. The Put Option period then starts after the expiration of the Call Option, if the Call Option was not exercised.

• BP7 Pty Ltd v Gavancorp Pty Ltd

BP7 entered into 14 Put and Call Options over lots in certain apartment blocks in Gerrale Street, Cronulla.

Gavancorp is the owner of one of those lots. The owners of the other lots were all listed as co-defendants in this case.

The Call Options were for a period of 18 months from the date of Option, and the Put Options were for a period of 10 business days after the expiry of the Call Option period.

BP7 was required to pay Call Option fees in each matter of 10%, broken into two tranches of 5% each. The first instalment was paid on exchange of Option, and the second instalment paid 6 months later.

The Put and Call Options were exchanged on 4 September 2018. BP7 paid both tranches of the Option Fees in time.

The Call Option period was due to expire 3 March 2020.

Perhaps due to the economical uncertainty being then caused by covid (no such reason is given in the case) BP7 never exercised their Call Option.

Gavancorp and the other vendors decided to exercise their Put Options on 5 March 2020.

Gavancorp and the other vendors were then met with a rebuttal: BP7 asserted they had cooling off rights under the contract which had just been enlivened, and that BP7 was hereby rescinding the contracts pursuant to their cooling off rights.

Worse still, BP7 demanded the refund of the 10% Option Fees, less the 0.25% that they would forfeit pursuant to their cooling off rights.

• Decision

His Honour Darke J. analysed the Conveyancing Act 1919 (NSW) in detail, and held that in order for the purchaser (BP7) to have waived their cooling off rights under the Put Option, a 66W Certificate would have to have had been issued by BP7's solicitor or conveyancer.

As there was no 66W provided, cooling off rights were not waived.

This decision would have come as a shock to the owners, but it is a useful decision for solicitors acting on behalf of residential vendors to insist on both a 66ZF Certificate and a 66W Certificate to waive the cooling off rights of the purchaser under both the Call Option and Put Option respectively.

For expert legal advice, contact Maclarens Lawyers on 96823777.