Put And Call Option Agreements Explained For Australian Businesses

Put and call option agreements can give you structured flexibility when you’re buying or selling a business, shares or property in Australia. They can help with timing, due diligence and certainty - but they also carry specific legal and tax risks if they’re not set up correctly.

In this guide, we’ll unpack what these agreements are, when they’re useful, how they work, the key clauses to include, and the main risks to watch out for. You’ll come away with a clear understanding of how to use put and call option deeds confidently - and when to get professional help to protect your position.

As a quick note, Sprintlaw provides legal advice. Tax issues (including stamp duty, CGT and GST) are specialist areas and you should seek advice from your accountant or a tax lawyer to ensure your structure is fit for purpose.

If you’re planning a deal and want tailored guidance, we’re here to help with practical, fixed-fee support.

What Is A Put And Call Option Agreement?

A put and call option agreement is a binding legal deed between two parties that sets up rights - but not immediate obligations - to buy or sell an asset at a later date on agreed terms.

• A call option gives the buyer the right (not the obligation) to buy the asset within a set period. If the buyer exercises, the seller must sell on the agreed terms.
• A put option gives the seller the right (not the obligation) to require the buyer to buy the asset within a set period. If the seller exercises, the buyer must buy on the agreed terms.

When both rights are included in one deed, it’s called a put and call option agreement. Properly structured, it can allow parties to “lock in” the framework for a future sale while managing timing, financing and due diligence. The underlying asset might be real property, shares in a private company, or business assets (goodwill, plant and equipment, IP and contracts).

An option deed is different to a sale contract. A sale contract generally binds both parties immediately (subject to any conditions). An option deed creates a pathway to a sale later, with clear procedures for exercising the option(s) and completing the transaction.

When Would A Put And Call Option Make Sense?

These agreements are used across a range of commercial scenarios. Common examples include:

• Business or asset sale timing: Where the parties agree on key terms now, but want to complete after finance is secured, regulatory approvals are obtained, or a particular balance date is reached.
• Property development: To allow time for planning approvals or due diligence while providing both sides with certainty around price and process.
• Shareholder exits and joint ventures: To create clear buyout mechanisms if a founder departs, or to structure a pre-agreed exit between JV participants. If you’re using options around equity, it’s wise to align them with a Shareholders Agreement and your Company Constitution.
• Commercial flexibility: To coordinate settlement with operational milestones (e.g. handover after a key customer contract is novated, or after certain warranties and indemnities are finalised).
• Risk management: To provide a structured “backstop” if a buyer delays, or to protect a seller from missing a market window.

A put and call option isn’t the right tool for every deal. Sometimes a straightforward Business Sale Agreement or a share sale agreement will be the simplest path. The choice comes down to timing, complexity, regulatory considerations, and each party’s need for flexibility.

How Do Put And Call Option Agreements Work In Practice?

Here’s a simple scenario to illustrate the moving parts.

Let’s say a buyer wants to acquire your company, but needs six months to complete diligence and line up finance. You agree to a call option giving the buyer six months to buy at a fixed price. If the buyer doesn’t exercise by the deadline, your deed might give you a put option that you can exercise in the following two weeks, compelling the buyer to complete on the same terms.

The deed would usually specify:

• Option fee: Whether a fee is payable for granting the option (and whether it’s refundable or credited to the price).
• Option periods and notice: The precise dates, method of notice (for example, email to specified addresses), and what constitutes valid exercise.
• Attached sale contract: The final form contract to be entered if the option is exercised, so there’s no ambiguity at the crucial moment.
• Conditions precedent: Any conditions that must be satisfied before the option can be exercised (e.g. finance approval, regulatory consent, third-party consents, board approvals).
• Settlement mechanics: The deposit, settlement date, and what must be delivered at completion (e.g. transfer forms, title documents, resignations, releases, keys, access credentials).

In many deals, the option deed is a “holding pattern” that gives both parties confidence to invest time and money in due diligence and approvals - because they know exactly what happens next if the option is exercised.

Nomination, Assignment Or On-Sale

Some option deeds allow the grantee to nominate another entity to take the transfer, or to assign the option. This can introduce duty and contract risk if it’s not drafted with care. If there’s any chance of a third party stepping in, make sure your deed addresses whether assignment is allowed, any conditions that must be met, and how the ultimate buyer will be bound - often with a formal novation or an attached sale contract that supports clean transfer of obligations. For context on transfers mid-deal, see this guide to assignment of contracts.

Execution Formalities

Option deeds should be executed correctly to be enforceable, especially where companies are involved. If a company is a party, consider execution under section 127 of the Corporations Act - here’s a helpful explainer on signing documents under section 127.

Key Clauses To Include (And Why They Matter)

No two deals are the same, but strong option deeds tend to cover similar ground. At a minimum, consider the following:

• Parties and asset clearly defined: Identify the grantor, grantee and any guarantors correctly, and describe the asset precisely (legal title details for land, ACN and share class for shares, asset lists for business sales).
• Option fee and treatment: Spell out the amount, when it’s payable, and whether it’s refundable or credited. If there are separate fees for the call and put options, address each one.
• Option periods and sequencing: Set specific start and end dates for the call option and (if included) the put option, and explain how they interact. Avoid ambiguous “windows”.
• Exercise mechanics: Detail how exercise notice must be given (method, content, addresses, business hours, time zone) and when it’s taken to be received. Include a template notice if helpful.
• Attached sale contract: Include a complete contract form in a schedule so that exercise automatically creates a binding sale. This reduces scope for disputes and delay.
• Price and adjustments: Confirm the price, GST treatment, and any completion adjustments (for example, working capital, stock, or apportionments of outgoings in a property deal).
• Conditions precedent: List any finance approvals, regulatory consents, counterparty consents (e.g. landlords or key customers), board or trustee approvals, and how they’re evidenced. If conditions can be waived, state who may waive them and how.
• Representations and warranties: Identify what each party promises (e.g. ownership, authority, no encumbrances), and whether they are repeated at completion.
• Default and termination: Specify what happens if a party breaches (including loss of option fee, costs, or termination rights), and the consequences of expiry without exercise.
• Assignment/nomination controls: State whether assignment or nomination is permitted, any approvals required, and how a substitute buyer is bound (for example, deed of accession or novation).
• Confidentiality: Often the deed itself includes confidentiality obligations, supported by a separate Non-Disclosure Agreement for the diligence phase.
• Execution as a deed: Option arrangements are commonly documented as deeds. If you want a refresher on why that matters, here’s a quick guide on what a deed is under Australian law.

Well-drafted deeds reduce the risk of misunderstandings, delays and disputes at the moment of exercise. They also help avoid language that could be treated as an immediate agreement for sale (which can have tax and duty consequences if you cross the line).

Legal, Tax And Compliance Considerations In Australia

Option deeds sit at the intersection of contract law, property/company law and tax. It’s important to understand the moving pieces - and to get the right advice at the right time.

Contract And Corporate Law

• Validity and enforceability: For an option deed to be enforceable, it must be clear, complete and properly executed. If the deed attaches a sale contract that will be formed on exercise, make sure it is final and executable without further negotiation.
• Authority to enter: If companies or trustees are parties, ensure they have authority to grant or receive the option (e.g. board or trustee resolutions). For companies, formal execution (including section 127 execution) can help with evidencing authority.
• Share sales: If the underlying asset is shares, the Corporations Act 2001 (Cth) provides the overall framework for companies and securities. Private M&A commonly uses options, but your documentation still needs to align with the company’s governing documents such as any Shareholders Agreement and Company Constitution.

Australian Consumer Law (ACL)

The Australian Consumer Law applies to misleading or deceptive conduct, unfair practices and certain guarantees when you’re dealing with consumers and, in some cases, small businesses. While many option deeds govern B2B transactions, your advertising, negotiations and representations still need to be accurate and defensible. Keep your statements (and warranties) consistent with what you can substantiate.

Stamp Duty, CGT And GST

Tax consequences depend on your asset and jurisdiction. A few high-level points to discuss with your tax adviser include:

• Stamp duty (state/territory duty): In some jurisdictions, duty can be assessed on the grant of an option, on exercise, or if the option deed is regarded as an agreement for sale. Combined put/call structures that make a sale inevitable can increase the risk of being treated like an immediate sale. Timing, wording and the underlying asset matter.
• Capital gains tax (CGT): The grant of an option may be a separate CGT event for the grantor, distinct from the CGT event on the sale of the asset if the option is exercised. The position differs for the grantee. Get advice on CGT timing and cost base implications.
• GST: There can be GST on the supply of the option itself and/or the underlying sale, depending on the asset, the parties’ registrations and any going concern concessions. Clarify GST treatment in the deed and the attached sale contract.

Important: Sprintlaw provides legal services. We don’t provide tax advice. Duty, CGT and GST should be reviewed by your accountant or a tax lawyer before you sign.

Third-Party Consents And Regulatory Approvals

Some transactions require third-party or regulatory consents before completion (for example, landlord consent to assignment of lease, key customer novations, or specific industry approvals). Build these into your conditions precedent with realistic timeframes, and specify who is responsible for obtaining them and on what terms. If the deal depends on transferring key agreements, factor in the potential need for novation or assignment within your attached sale contract.

Common Risks (And How To Manage Them)

Options offer benefits, but they’re not risk-free. Here are the pitfalls we see most often - and how to minimise them.

• Missing exercise windows: Options are deadline-driven. If you miss the exercise date or fail to give notice in the specified way, the option can lapse. Manage this with clear timelines, reliable notice methods and calendar reminders on both sides.
• Ambiguous exercise mechanics: Vague provisions cause disputes. Include precise notice details, attach a template notice, and specify the sale contract that automatically comes into effect on exercise.
• Unintended tax consequences: Poorly worded deeds can look like a binding contract of sale. Work with your advisers to avoid language that creates an immediate obligation to buy and sell before intended, and confirm the duty/CGT/GST consequences up front.
• Nomination/assignment exposure: Allowing free nomination or assignment can create duty issues or leave you exposed to a weak counterparty. If substitution is allowed, include conditions (for example, prior consent, identity and creditworthiness checks, guarantees, or novation) and make sure the ultimate purchaser is bound.
• Due diligence gaps: If the deed assumes diligence will occur during the option period, make sure confidentiality is covered (via an NDA) and that you’ve identified and scheduled any key investigations.
• Execution defects: Deeds need to be executed properly to be enforceable. Ensure the correct parties sign, and consider formal corporate execution under section 127 where relevant.

A thoughtful option deed anticipates these risks and addresses them up front. That’s the best way to protect your deal momentum and reduce surprises later.

What Documents Will I Need For A Smooth Option Deal?

Option deeds don’t live in isolation. Depending on your transaction, you may also need:

• Put and Call Option Deed: The main agreement setting out the option rights, timing and exercise mechanics, often with a sale contract attached as a schedule.
• Business Sale Agreement or Share Sale Agreement: The contract that will be entered on exercise, covering the detailed sale terms, warranties, indemnities, adjustments and completion deliverables. If you need a robust baseline, here’s our Business Sale Agreement service.
• Non-Disclosure Agreement (NDA): To protect confidential information shared during due diligence and negotiations. You can use our Non-Disclosure Agreement to formalise this.
• Shareholders Agreement and Company Constitution: If the deal involves shares or a staged buyout, align your option rights with your existing governance documents - see Shareholders Agreement and Company Constitution.
• Ancillary deeds: Depending on the deal, you might need novations, IP assignments, releases, guarantees or transitional service agreements to support completion.
• Board or trustee approvals: Minutes or resolutions that authorise the company or trustee to enter the deed and the sale contract.

If you’re purchasing the assets of an operating business, think ahead to post-completion needs too - customer terms of trade, supplier agreements, employment contracts and policies. For new hires or transferring staff, put in place an Employment Contract suite early so onboarding is smooth from day one.

Practical Tips To Set Your Option Deal Up For Success

• Lock down the commercial terms first: Price, timing, diligence scope, key consents and completion deliverables should be agreed in principle before you start drafting. A short heads of agreement can help align expectations.
• Attach the final form sale contract: Avoid “agreeing to agree” later. Attach the sale contract as a schedule so exercise flips you straight into a binding sale without fresh negotiation.
• Be precise about notice: Include named contacts, email addresses, business hours, time zone and receipt assumptions, and attach a template notice for exercising the option.
• Coordinate with your tax adviser early: Duty, CGT and GST treatments should be confirmed before the deed is signed. Revisit if the structure or parties change.
• Plan your completion checklist: Identify all completion deliverables (documents, transfers, consents, releases, keys, codes) and allocate responsibility for each item so settlement is orderly.
• Keep a tight calendar: Option windows are unforgiving. Put reminders in multiple calendars and nominate a responsible person to manage dates and notices.

Key Takeaways

• Put and call option agreements create a structured pathway to a future sale, giving parties flexibility on timing while preserving certainty around price and process.
• Well-drafted deeds specify option windows, exercise mechanics, price and GST treatment, conditions precedent, assignment/nomination rules and an attached sale contract.
• Risks include missed deadlines, ambiguous exercise procedures, unintended tax consequences and assignment/nomination pitfalls - each can be reduced with careful drafting and planning.
• Australian legal and tax considerations matter: ensure proper execution, authority to enter, alignment with corporate documents, and obtain specialist tax advice on duty, CGT and GST.
• Your broader document suite may include an NDA, a Business Sale Agreement, governance documents like a Shareholders Agreement, and employment documentation if you’re taking over a team.
• Getting legal advice early helps you choose the right structure, avoid unintended tax triggers and set up a clean, enforceable path to completion.

If you’d like a consultation on put and call option agreements for your business, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.