Put and Call Option: The Need for Certainty
Background: Put and Call Option
Hilas & Anor v GGPG Developments (‘Hilas’) is a recent Queensland Supreme Court case which examined the validity of a ‘put and call option’ style contract for the sale of land that contained uncertain terms.
A put and call option is a useful way for parties to enter into an agreement to buy or sell land in the future with minimal upfront obligations. This style of contract is documented by way of a deed, and more specifically involve:
1. A call option: This is granted by the seller in favour of a buyer and is an enforceable right to buy property at a future date for a particular price; and
2. A put option: This is the opposite of a call option and is granted by the buyer in favour of the seller. This is an enforceable right to sell the property at a future date for a particular price.
Hilas arose over a dispute between Mr and Mrs Hilas and GGPG Developments (‘GGPH’). Mr and Mrs Hilas entered a put and call option deed for the sale of their property with GGPH (‘Deed’).
The Deed was varied numerous times, and the latest variation of the Deed provided that the call option period would expire on 4 September 2020. Additionally, the variation neglected to address the purchase price in relation to the call or put option under the Deed.
On 3 September 2020, GGPH’s solicitors wrote to the Hilas’ solicitors stating that the Deed was fundamentally deficient as it failed to provide the updated purchase price. The purchase price is an essential term of a contract, and therefore it was argued by GGPH that the Deed was consequently void.
Mr and Mrs Hilas subsequently issued a Notice of Exercise of Option (‘Notice’). This Notice in practical effect required GGPH to fulfill their obligation to purchase the property.
Decision of the Supreme Court
The central issue before the Court in Hilas was whether the terms of the varied Deed were uncertain as to the purchase price of the call option. GGPH maintained that the terms of the varied Deed were uncertain as the parties had not agreed upon a purchase price for the property.
Justice Flanagan found that a reasonable businessperson would not consider that there was any uncertainty as to the purchase price as it could easily be determined with reference to prior variations of the Deed. Consequently, the Notice issued by Mr and Mrs Hilas was valid and effectual and GGPH were required to purchase the property under the call option.
Certainty when Drafting Commercial Contracts
Despite the favourable result for Mr and Mrs Hilas, Hilas serves as a reminder that care must be taken when drafting property contracts. There is no room for uncertainty when drafting put and call option deeds, and Hilas highlights how litigious these matters can become.
If you require a contract to be drafted or are interested in this type of agreement, contact us on 1300 749 709. Our experienced litigation and property team here at Ramsden Lawyers would be happy to assist.