Put option clarity is coming in NSW

The New South Wales Government has introduced the Conveyancing and Real Property Amendment Bill 2025 (NSW) to address significant uncertainty surrounding the application of vendor disclosure laws to put options in property transactions. This uncertainty was illustrated by the NSW Supreme Court's decision in BP7 Pty Ltd v Gavancorp Pty Ltd, which highlighted a gap in the relevant legislation and disrupted long-standing conveyancing practices.

Subject to some exceptions, the vendor disclosure scheme provides for required documents to be available to purchasers before entering into transactions and grants purchasers cooling off rights in contracts for sale and options for residential property.

Cooling off rights permit a purchaser to cancel a contract. One exception is that cooling off rights do not apply to contracts arising from the exercise of "options to purchase".

Before Gavancorp, it was generally accepted conveyancing practice that purchasers had no cooling off rights under contracts arising from the exercise of options. This exception was applied to contracts arising from both put and call options.

In Gavancorp the NSW Supreme Court decided that the expression "option to purchase" in the exception should be given its ordinary and natural meaning, being that a purchaser must have a choice to enter into the purchase contract. Contracts arising from the exercise of put options were decided not to be of this character because they require purchasers to enter into contracts, lacking the element of choice. This meant that contracts arising from the exercise of put options did not fall under the exception and, unexpectedly, purchasers had cooling off rights under such contracts.

For the Gavancorp case the result was that the developer purchaser was able to cancel the contracts it had been required to enter into after 14 apartment owners exercised their put options. The owners lost their rights to compel the sales to the developer, had to refund the option fees paid by the developer (less 0.25% of the purchase prices) and had to pay all legal costs.

The decision provides developers with similar arrangements a potential, and perhaps unintended, right to cancel contracts entered into pursuant to the exercise of put options. It introduces uncertainty into these types of transactions and increases the potential for disputes.

The Bill seeks to address the uncertainty and restore the previous practice by inserting a new definition of "option" that explicitly captures both call and put options.

When the Bill passes Parliament and receives assent:

• the required documents to be available to purchasers before entering into put or call options will be consistent; and

• purchasers under contracts arising from the exercise of either put or call options will not have cooling off rights.

Parties can then proceed with greater confidence in the enforceability of their arrangements, which may influence negotiations and deal structuring.

If you have any questions about how these changes might affect your property transactions and projects or require assistance with drafting or reviewing option agreements, please contact our team.