The exercise of Options following changes to Standard Contracts

Changes in legislative requirements and standard contracts between the time of entry into an option and the time of the exercise of the option (which may well occur in a few years’ time), may put a lawyer in a position where it is uncertain how the put option should be exercised. In particular this raises the question as to whether the parties should:

  • act in strict compliance of the forms contemplated under the option agreement, which may well be obsolete and may not contain critical contractual terms due to changes in legislative requirements; or
  • exercise the put option via execution of the current standard contract.

The Queensland Supreme Court in the recent case of Matos v JLF Corporation Pty Ltd [2016] QSC 32 has provided guidance  by ruling that put options need not be exercised in strict compliance, as long as the intention to exercise the option is clear and unequivocal.

Matos v JLF Corporation Pty Ltd

On 14 October 2011, Mr Matos purchase an off the plan investment property from JLF, the parties then entered into a Put Option Agreement around settlement in February 2012 where JLF agreed to buy back the property.

Mr Matos purported to exercise the option by signing the put option notice and attaching the current edition of the REIQ standard contract for houses and residential land (10th Ed).

The contract attached to the Put Option Agreement was an 8th Edition REIQ standard contract.

JLF argued that the exercise of the put option was invalid as the contract submitted contained substantial variations to the offer envisage under the Put Option Agreement and as such constituted a counter-offer.

The Court ruled that strict compliance was not required and it is sufficient for there to simply be an expression of intention to exercise the option. Further, clause 1.2(f) of the put option provided that the form 30c (the warning statement under the repealed PAMDA) may be replaced or amended, which contemplated the use of more up to date form 30c, indicating that strict compliance was not envisaged, as long as every effort is made to conform with the intention of the Agreement. Ann Lyons J remarked that it would be absurd for the applicant to send an obsolete form and potentially be exposed to a penalty in exercising the option.

The commercial setting of the matter also influenced the court’s decision to some extent, given the fact that the property was sold as an investment house and Mr Matos was incentivised to purchase on the promise of the put option. JLF’s conduct also held to have silently acknowledged the exercise of the option.

Issues to note:

Parties intending on entering into a similar transactions should ensure that:

  • their option agreements are drafted clearly to provide for:
    1. the parties contemplating the use of a new version of the standard contract;
    2. the form of contract that the option agreement permits; and
    3. whether strict compliance is required with both form and substance.
  • options are exercised clearly and that the party expresses an unequivocal intention to exercise the option; and
  • they comply with the legislative requirements in force at the time of the option is exercised.

Elena Mastyuk

Senior Associate

Brisbane 07 3009 8444
Email e.mastyuk@rclaw.com.au

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Supervising Partners

Gavin McInnes

Partner

Brisbane 07 3009 8444
Sydney 02 9307 8900
Email g.mcinnes@rclaw.com.au

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