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Secure now, pay later: Buying rural land during COVID-19

30 April 2020

#Agribusiness, #Property, Planning & Development, #COVID-19

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Secure now, pay later: Buying rural land during COVID-19

With drought breaking in some areas of the country, more and more rural properties are being placed on the market following improving conditions and sale prices. Unfortunately with the current restrictions being imposed by COVID-19, it is not an easy time for buyers looking to purchase property. 

With in-person auctions currently banned, restrictions on the number of people in work places and banks receiving an all-time high number of enquiries from every sector of financial services depleting their availability, service providers are looking for alternative ways to provide traditional services.

So where does this leave buyers?

Rural contracts are rarely settled in a short period of time, with consents, land searches and due diligence ordinarily requiring a contract for a minimum of 60 to 90 days from signing until settlement. The current restrictions may potentially hinder the process even longer as relevant agencies move to different levels of restrictions and in traditional rural contracts, in the event that settlement does not occur because of these delays, the contract may potentially be terminated.

An alternative to the parties moving straight to contract is to enter into a put and call option. This allows the parties to secure the benefits of a contract now, while deferring progress on the transaction until after current restrictions ease and parties are able to transact with greater ease.

There are a number of additional benefits in entering into a put and call option, such as creating a contractual right to purchase the property, while allowing the buyer more time to finalise the structure in which it wishes to purchase the property. For example, if the buyer wants to incorporate a new company or trust, but does not wish to go to the additional expense until such time as a property has been secured, it could do this after entering into an option provided that the option contains sufficient rights for the buyer to nominate an alternative purchaser. An option may also defer a capital gains tax (CGT) event until the new financial year.

Transfer duty is still payable on an option, however it is payable on the dutiable value of the option (or the option fee, whichever is the greater). This is often a lesser amount than the duty that is payable on the land, and in the event that the option fee is credited to the purchase price of the property, the buyer receives credit for the duty paid on the option.

Author: Kylie Wilson & Nicole Withers 

The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this newsletter is accurate at the date it is received or that it will continue to be accurate in the future.

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