LexisNexis® Practical Guidance
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Call options over land are well understood commercially but the legal effect of the documents is the subject of controversy and clear drafting is crucial. This is not just a theoretical issue. Of particular significance is the flexible mechanism by which a nominee can be appointed to exercise an option.
Drafting impacts whether a nominee is duly appointed and in what capacity the nominee acts, namely: The case involved the appointment of a nominee under a call option over land in New South Wales. The ability to nominate another entity to exercise an option provides a practical and flexible solution. The challenge is in determining how the nomination provision should be drafted. Also, the drafting of the nomination provision is not the end of the matter.
If a grantee decides to appoint a nominee, the circumstances and drafting of any arrangement between the grantee and nominee may also trigger a stamp duty liability. Relevantly, the key stamp duty drafting issues for options over land in New South Wales are as follows:.
There is a clear intention in the duties legislation in New South Wales to charge duty on a nomination under a call option if there is also a put option in place.
The opportunity for drafting is key in where there is only a call option. If it was an assignment of the option it was liable to transfer duty the top marginal rate is 5. The taxpayer won that case, but the Court had to undertake an arduous and detailed review of the documents because there was no clear statement on either the nature of the option or the character of the nomination.
The option is not the only document that needs to be considered to determine whether duty is payable. The drafting of any agreement between the grantee and nominee is also key. This is because, even if the nomination provisions in the option indicate a novation, any documents entered into between the grantee and nominee may constitute an assignment of the option. For example, if the grantee and nominee enter into an agreement to assign the option to, as well as nominate the nominee then duty will be payable.
In light of the above, the drafting of an option and nomination documents should address clearly:. The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication. Call option nominations - Poor drafting can hurt. Subscribe to our Monthly Thinking Email Update.
Related Content Tax Expertise. Is the option drafted as a conditional contract for sale? Is the option drafted as an irrevocable offer?
Is the nomination under the option an assignment or novation? Is the arrangement between the grantee and nominee an assignment of the option? Generally dutiable — both on the option and the market value of the land.