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Most property buyers understand they have cooling-off rights when purchasing residential property in NSW. What's less clear is how those rights work when the purchase happens through an option arrangement.
The Conveyancing and Real Property Amendment Act 2025 has resolved ambiguity that emerged from a 2021 court case about put options. The changes don't create new obligations, but they clarify when vendor disclosure requirements apply and when cooling-off periods do and don't operate in option transactions.
What changed with put options? NSW law now explicitly confirms that vendor disclosure requirements applying to options to purchase residential property also apply to put options (where the holder compels the other party to buy).
When does this matter? For property transactions structured with option arrangements, particularly in development contexts or staged acquisitions.
Key insight: Disclosure obligations apply when creating the option, but cooling-off periods don't apply to contracts formed when options are exercised.
Why guidance helps: Understanding when disclosure is required and how cooling-off rights operate in your specific option arrangement determines compliance and affects transaction timing.
In property transactions, options are usually used to secure the right to purchase a property - or a right to require someone to purchase a property - if certain conditions are met. For example, a property owner might grant a developer an option to purchase if the developer is able to secure a DA.
Broadly speaking, there are two types of options commonly used in property transactions - call option and put option - these types of options can be used separately or together.
By far and away, call options are the most commonly used type of option. In property transactions, a call option is an option granted by a property owner to a prospective purchaser that gives the prospective purchaser right to buy a property. The prospective purchaser decides whether or not to exercise a call option. If the prospective purchaser doesn't exercise the call option that is the end of the transaction - the prospective purchaser walks away and the property owner is left with their property.
In property transactions, a put option is an option granted by a prospective purchaser to a property owner to require the prospective purchaser to purchase the property owner's property. Put options are almost always used in conjunction with a call option - a property owner grants a prospective purchaser a call option (a right to purchase their property), if the prospective purchaser doesn't exercise the call option, the property owner can then exercise their put option and require the prospective purchaser to purchase the property.
If an option is granted, the parties then enter into a contract for sale.
You might (rightly) think what is the point?
Property developers use options in site acquisitions and staged developments where they want control over purchase timing without immediate commitment. A landowner might grant a developer a call option exercisable when development approval is obtained. Once approval comes through, the developer can exercise the option and purchase the property, but isn't obligated to proceed if approval doesn't materialise as expected. If the developer is just wanting time to secure investors or set up a special purpose vehicle (SPV) for a developer, both a call option and a put option may be used. If the developer secures the investors needed or sets up an SPV the developer can require the land owner to sell the property. However, if the developer doesn't meet those goals, the put option gives the landowner the right to require the developer itself if it isn't able to secure investors.
The next logical question ... an option sounds almost like a conditional contract for sale so do the same vendor disclosure and cooling off rights that apply to contracts for sale apply to options. That's where things have got a bit murky over the last few years.
The 2021 case BP7 Pty Ltd v Gavancorp Pty Ltd highlighted confusion about whether vendor disclosure requirements and cooling-off provisions applied to put options. Property lawyers understood the policy intent - residential property purchasers should have disclosure and cooling-off protections regardless of transaction structure and disclosure obligations were complied with and cooling off rights afforded (or waived) where options were granted. When an option was exercised and a contract for sale entered into, was the vendor required to again comply with disclosure obligations and afford cooling off rights (or require the purchaser to waive those rights)?
The legislation created uncertainty about how disclosure obligations and cooling off rights applied to put options specifically.
As an example, say a landowner and a property developer enter into an agreement that contains both a call option and a put option. At that time, the landlowner complies with their disclosure obligations and the purchaser has the benefit of a cooling off period. Fast forward, the developer doesn't exercise the call option bu the landowner wants to sell the property so the landowner exercises the put option to require the developer to purchase the property and the parties enter into a contract for sale. Does the developer have the benefit of a second cooling off period? If so, the developer could effectively 'avoid' the sale by terminating the contract for sale during the cooling off period?
Different interpretations were defensible, which meant documentation practices varied and disputes could arise about whether requirements were met.
For property transactions involving significant commercial stakes, this uncertainty created genuine compliance exposure and complicated transaction structuring.
The amendments address the ambiguity directly. The new definition of "option" in section 66P(1) of the Conveyancing Act 1919 now explicitly captures both options to purchase and put options.
This means vendor disclosure requirements applying to options to purchase residential property now also apply to put options. If you're creating a put option arrangement over residential property, vendor disclosure obligations apply when the option is created, not when the option is exercised and a contract for sale entered into.
The cooling-off provisions work differently than some people expect. Section 66T(d) provides that contracts made in consequence of exercising an option have no cooling-off period. This applies to both call options and put options.
The provision aligns with section 17(3) of the Conveyancing (Sale of Land) Regulation 2022, which exempts contracts resulting from exercised options from cooling-off requirements. The policy logic is that the option period itself provides time for consideration - cooling-off at contract formation would duplicate this protection.
In practical terms: vendor disclosure happens when you create the option arrangement. Once the option is exercised and the contract formed, there's no additional cooling-off period for that resulting contract.
For property developers acquiring sites through staged arrangements, the amendments clarify documentation requirements. If you're using options to control acquisition timing, vendor disclosure needs to happen when creating the options, not at exercise.
This affects transaction timing and information requirements. The developer needs sufficient property information to satisfy disclosure obligations before the option documentation is finalised. What seemed like preliminary arrangements actually trigger substantive disclosure requirements.
When properties involve multiple titles or where put options form part of more complex transaction structures, the interaction between disclosure timing and option exercise becomes more nuanced. A development site spanning three titles with put options over two of them requires disclosure for all option arrangements upfront.
For landowners granting put options to developers, understanding that disclosure obligations apply at option creation affects what information needs to be gathered and when. You can't defer disclosure until the developer decides whether to exercise the option - the disclosure obligation arises when the option is created.
Corporate transactions using put options as exit mechanisms face similar considerations. If the underlying property is residential, disclosure obligations apply regardless of the commercial nature of the broader transaction. The property character determines disclosure requirements, not the transaction purpose.
What may catch people is the absence of cooling-off once an option is exercised. The option period provides time for due diligence and consideration. Once you exercise the option and create the contract, that contract isn't subject to cooling-off.
For standard residential purchases, cooling-off provides five business days after exchange to withdraw. For contracts resulting from exercised options, this protection doesn't apply. The legislative logic is that the option period already provided time for consideration.
This affects transaction strategy. If you're the party exercising an option, you need to be certain about proceeding before exercise. You can't rely on cooling-off to provide an additional window for reconsideration. The contract formed at exercise is binding immediately, subject only to any conditions specified in the contract itself.
When option arrangements involve properties requiring building inspections, strata searches, or other due diligence, that investigation needs to happen before option exercise or be addressed through contract conditions. The absence of cooling-off means you can't use that period for further investigation after exercise.
Consider a developer acquiring a residential property for subdivision and development. The structure involves immediate purchase of the front portion, with a call option over the rear portion exercisable once subdivision approval is obtained.
Under the clarified framework, vendor disclosure requirements apply when creating the call option over the rear portion. The vendor needs to comply with disclosure obligations for both portions before finalising the option arrangement, even though purchase of the rear portion is conditional on obtaining subdivision approval.
Once subdivision approval is obtained and the developer exercises the call option, the resulting contract has no cooling-off period. The developer needs to complete due diligence before option exercise or ensure the contract includes appropriate conditions.
This structure provides the developer with control over timing - they're not committed to purchasing the rear portion unless subdivision approval materialises. Both parties understand disclosure happened at option creation and cooling-off doesn't apply at exercise.
Option arrangements in property transactions create specific compliance requirements around disclosure timing and cooling-off rights. I work with property developers, investors, and landowners to structure option arrangements that achieve commercial objectives whilst meeting legal requirements, ensure disclosure obligations are satisfied at the appropriate time, and document transactions in ways that provide certainty about rights and obligations.
The value I provide is knowing what the legislation requires and structuring arrangements so disclosure, option terms, and contract conditions work together to create workable transactions. Having worked with various option structures in commercial and residential contexts, I understand how legislative requirements translate into practical documentation.
Get advice before entering option arrangements if:
Professional guidance is particularly valuable when option arrangements involve multiple properties, staged acquisitions, or where disclosure timing affects commercial negotiation.
The disclosure requirements specifically apply to residential property. Commercial property transactions aren't subject to the same mandatory vendor disclosure regime. However, the principles about option definition and cooling-off exemption at exercise apply regardless of property type.
The disclosure requirements and cooling-off provisions apply based on the property character (residential vs commercial), not who's purchasing. If you're acquiring residential property through a company or trust structure using put options, the vendor disclosure requirements still apply when creating the option.
You can negotiate contract terms providing withdrawal rights even where legislation doesn't mandate cooling-off. This would be a contractual arrangement rather than statutory cooling-off, but it can provide similar protections. The terms would need clear documentation about how and when withdrawal rights operate.
Failure to provide required vendor disclosure creates statutory remedies for the purchaser, including potential contract rescission rights or compensation. The specific consequences depend on the circumstances and what disclosure was required but not provided.
There's no prescribed substitution formula. The appropriate option period depends on what due diligence you need to complete, how complex the property assessment is, and what contingencies affect your decision. Unlike the standard five business days cooling-off, option periods are negotiated based on transaction requirements.
