Hi All,
Apologies if this question has been posted elsewhere but my situation is:
1. My parents own a PPOR house (and block of land) that sits in a zone that has been recently declared as a High Residential/Mixed Use zone by the NSW Dept of Planning (not the Local council)
2. Currently there is only a Floor to Space ratio (FSR) of 1:1 which means developers currently CANNOT use this land for apartments yet
3. However, Real Estate Agents are starting to pitch to my parents and adjoining neighbours in trying to sign us up with a RE Agency agreement in the hope of finding a buyer for our land (preferably as a block of houses combined to gain maximum dollar).
Agents are proposing to complete a Vision Statement to Dept of Planning so that the FSR can be changed to something like 3:1 or 4:1.4. At the moment I’ve heard from 1 RE Agent groups pitching for a Call & Put Option scenario for us to consider and another developer asking us to sign a CALL option for 24 months (they pay us a small a premium of $30k)
5. I’m told upon rezoning, FSR of 3:1 will give us a market value of approx $3M and FSR 4:1 of $4M.
Current Mkt value of house/land approx $1.2-$1.5MQuestions:
1. While FSR is currently only 1:1, is the only likely offer we are going to get from Developers going to be a call option or call+Put option (which could lead to eventual sale price of $3-$4M?) or is it also possible a developer may offer a normal sale (40 days settlement) that is above current mkt value but lower than potential outcome of FSR 3:1 e.g $2.5M?
2. Do developers only offer call options or call+put options in this situation where there still needs to be a rezoning process to be made? Is there no chance for us to sell prior to rezoning and developer takes on the risk (and upside) of rezoning?
3. Is a Call option actually safe for us sellers? It gives the buyer (developer) the right but not the obligation to buy our property in the next 24 months? The way I see it, we lock ourselves in with this developer for next 24 months and it is all up to the developer to decide to buy or not and we have no control whatsoever.
4. Is a call + put option much safer than call option alone for us sellers? Is both parties will be obligated to proceed with the sale (provided certain conditions are met in future e.g rezoning comes in at FSR 3;1 or 4:1)
Apologies for the lengthy post and thanks in advance for any feedback and advice you can provide me.
1. possible, but maybe unlikely
2. a put and call option would lock both parties in. Developers want an out if case they cannot do what they want to construction wise
3. safe in what sense? You will have no control, but will get to keep the option fee if it doesn’t proceed to a sale
4. yes, if your intention is to lock in the developerTerryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanks very Much for your reply Terry.
Yes my intention is to lock in the developer and not give them all the control with a call only option (esepcially for a 24 month period).
I haven’t’ seen a Call Option contract’s T&C’s but I’d imagine it will include a clause that a sale will only go ahead under certain circumstances eventuate (i.e a rezoning and FSR ratio of at least 3:1) Anything less than FSR 3:1, the “trigger event” for the option has not occurred and the option will lapse – Im hoping?)
With the current offer we have on the table whereby we receive a small option fee of $30k in exchange for a call option and the developer has the right to buy our property at FSR 3:.1, within a 24 month period, is not attractive to us, as we lose control for 24 months and we are only compensated for $30k.
The key risk for me is (again I need to see the T&C’s of call option agreement), is it possible we get a rezoning in 6 months time and it comes up with a favourable FSR of 4:1, but the developer for whatever reason (maybe they are too busy or don’t have enough capital) decides not to purchase our property until the very last month of the option agreement (24th month) or even worse just walks away forgoing the option fee altogether after 24 months. Yes we get to keep the $30k fee and keep the property but when you have the expectation of selling at $3-$4M, you don’t want to wait for 24 months and find out by then the developer decides not to buy. I know with a rezoning of FSR 4:1 will be attractive to other developers, but its that 24 month waiting time that is what we prefer to avoid!
It might sound like we want too much but if we can do a straight sale with 40 day settlemt at a discount to a FSR of 3:1, we will prefer this but not sure how realistic that scenario is.
The developer will want the power to walk away without any obligation, probably no matter what the circumstances. It is really up to your negotiating skills and how bad they want the deal.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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