As an interest in land, an option must be in writing. This also applies to transactions relating to options such as an extension to the option period, assignment of an option or the surrender of an option. Where there is insufficient writing, the doctrine of part performance may enable a court to find and enforce an option.

See Written document and Part performance.

Where an option is in the form of a contract it must be supported by consideration. If there is no consideration, the option should be in the form of a deed.

See Consideration.

As a type of contract, the usual concepts for construing contracts apply to options. Accordingly, options may be set aside if they were induced by fraud, tainted by illegality or induced by misrepresentation. This will also extend to statutory provisions such as those found in the Competition and Consumer Act 2010 (Cth). Examples of these cases relevant for options are set out in the guidance note “Construction of option terms”. The guidance note also examines the operation of the doctrines relating to uncertainty and implied terms.

See Construction of option terms.

As an option period may extend for a number of years and creates an interest in land, it must be considered if an option could be void under the rule against perpetuities. The common law generally considered that options were beyond the reach of the rule against perpetuities. This was confirmed in the statutory formulations of the rule against perpetuities in the Perpetuities Act 1984 (NSW) and the Property Law Act 1969 (WA). However, the application of the relevant legislation in each state should be considered. In particular, s 15 (2) of the Perpetuities and Accumulations Act 1968 (Vic), s 15 of the Perpetuities and Accumulations Act 1992 (Tas) and s 218 of the Property Law Act 1974 (Qld), which can limit an option to 21 years.

In the Northern Territory, the situation is more nuanced and the rule against perpetuities does not apply to an option for the renewal of a lease or an option (or right of pre-emption) of a lessee to acquire a reversionary interest in the property comprised on the lease. Otherwise, the perpetuity period is a life in being plus 21 years or 80 years from the date on which settlement takes effect: s 197 of the Law of Property Act (NT).

In practice, in preparing an option it is important to ensure that the usual formalities relating to an interest in land as a contract are complied with. In particular, it is important that the written documents set out the essential terms of the option.

See Essential terms of an option.

See Duration.

A grantor must have the ability to understand the nature and effect of the transaction in order to grant an option. Corporations and incorporated associations are able to grant an option to purchase an interest in land subject to having the requisite capacity. Legal personal representatives can also grant an option in certain circumstances. However, minors are generally unable to grant an option to purchase an interest in land. Unincorporated associations are generally unable to hold an interest in land except under a trustee and, as such, are generally unable to grant an option to purchase an interest in land except via the trustee.

See Capacity to grant options.