Ajax,
I've sold a few OTP units using a Put and Call Option (and buying would be the same process), here's what happens:
A price is agreed upon and the P & C is drawn up by the vendor's solicitor and the Contract for Sale that is to be executed on a later date is attached to the P & C. The P & C is signed by all concerned, but the contract is NOT signed. The P & C will have a predetermined excercising date and a predetermined excercising price. The P & C will also have a option fee written into it which is payable on the signing of the P & C. This amount later becomes the deposit when the Contract is exchanged. Once all parties have signed, the P & C is exchanged in the same manner that a normal Contract is exchanged.
Note that the P & C does say that the purchaser is obligated to complete the Contract through to settlement, and that any rescission will result in legal action as per a normal contract.
When settlement is due, notice is sent to the purchaser that he is required to excersise his Put option within 7 days. Within that time the purchaser is required to sign the Contract that was previously attached to the P & C. The vendor is also required to sign his counterpart Contract that was attached to the P & C. This is then exchanged like a normal Contract. Once that is done you have an exchanged Contract with settlement due to occur on whatever date was written into the Contract that was attached to the P & C at the time of signing it.
If the purchaser does not excersise his Put (which is what happened to us in one situation), the vendor has the right to excersise his Call option. This basically forces the purchaser and gives the purchaser a further 7 days to sign his contract and exchange it. It basically gives the purchaser notice that if he doesn't sign he will be pursued. If he doesn't, then he's subject to the normal penalties that one would be subject to should they decide not to settle on an exchange contract.
I don't know what happens if the vendor decides not to excersise his Call...maybe someone else can clarify that.
We've done a couple of these, and most went well with the purchaser onselling prior to his completion date, and everyone was happy. In one of our situations we had to excersise our Call, and the purchaser refused to settle still, so we had to resell the property and recover the difference in price plus penalties plus plus plus....
P & C's are used by purchasers who want to onsell their purchases for higher than what the purchaser has paid for it and avoid stamp duty, but the advise from my solicitor at the time was that the stamp duty loophole was closed and the purchaser who onsold would still be liable for stamp duty anyway.
A P & C is an enforceable contract, hence our ability to recover costs etc, however, I found it to be a ridiculous system with way too much paperwork and too many parties involved if the purchaser has been successful in onselling, and pointless given that any stamp duty avoidance loophole had been closed.
It's also risky if you're planning to onsell, as you will be required to complete the contract whether you've onsold or not, so you'll have to have yourself organised for that event should it occur.
I think that's the system that our solicitor worked by, but if anyone else could clarify that would be great.
