This topic covers the nature of options to purchase land. It does not deal with options to renew leases or acquire shares.

In simple terms, an option is usually the right to require the owner of a property to enter into a contract for the sale of the property.

An option will typically comprise:

• an option agreement often in the form of a deed;

• the proposed contract for sale of land, usually as an attachment, and the price for the purchase;

• a period for the exercise of the option — the option period — or an expiry date for the option period;

• the consideration for the grant of the option — the option fee or premium; and

• the parties — the grantor, being the owner of the property, and the grantee, being the prospective purchaser.

Other matters that are usually contained in the option are the method of exercise of the option, often with a form of Notice of Exercise and the method of service of the notice.

The option may also allow for an alternative purchaser, being the nominee, to be nominated to enter into the contract for sale of land. This is known as nomination.

The drafting and exercise of an option together with nomination, extension and assignment will be dealt with in later guidance notes.

An option generally has the following characteristics:

• It is a chose in action assignable at law and in equity.

• It is an interest in land entitling the parties to seek equitable remedies and creating a caveatable interest.

• It is subject to contract law requirements for writing, consideration and the doctrines relating to uncertainty and implied terms.

These matters are considered in further detail in later guidance notes.

An option is usually contrasted with a right of pre-emption. Under an option, the grantee has the sole right to determine whether to purchase the property. Under a right of pre-emption, the grantee only has a right to acquire the property as a result of the actions of the grantor. A frequent form of pre-emption is a right of first refusal in the event that the grantor desires to sell the property. Most rights of pre-emption are personal to the parties and constitute only a contractual obligation.

As a warning, please note that the term “option” is the description of a class of contracts which usually have the characteristics and rights described in this topic. However, these characteristics and rights can be varied by the terms of the contract creating the option and the terms of each contract document must be separately considered. For example, a document titled “Option” may be limited in granting only personal rights that do not create an interest in land or bind the personal representatives on the death of the grantor.