Option to purchase property

[The Judge]

Can anyone please advise how an option to purchase a property works

 

[Xenia]

Just like an option to purchase shares!

The option grantor gives the grantee the right but not the obligation to purchase a particular property for a specified price within a defined period of time.

An option consideration may be exchanged for the privelidge granted.

Hope this makes sense!

 

[michaelg]

Hi,

Tony Cordato of Cordato Partners (Sydney) is a savy solicitor on lease options.

Basically consists of...

a) Lease document - that covers the rent - usually for a set period of time equal to the option i.e. 12-24 months.

b) Option document - that sets (1) the "strike" price - how much will the property be sold for if the "option" is "exercised" and (2) the "premium" the fee the buyer will pay to buy the option.

So buyer pays option to exercise the option to buy the property at a set (strike) price - tied with a lease they usually rent the property for the duration of the option (try before you buy).

If they decide to buy they exercise the option and purchase the property at the strike price. The premium they paid at the beginning of the lease would contribute to the purchase price.

If they choose not to exercise the option - the option "expires" worthless and the seller gets to keep the premium (plus the rent).

Sources of info;

- Cordato Partners
- The Australian Lease Option handbook (god knows where this is available now)
- The Australian Vendor Finance Association
- www.rickotton.com

Regards
Michael Gruber