Call option

Purchase option refers to the contractual right granted to a person (the option holder) to purchase a property within a specified period at a predetermined price, without being obligated to do so. The seller, however, is bound during the option period-they may not sell the property to another party. The purchase option is a flexible tool in project developments, commercial lease agreements, and in situations where the buyer still needs time for due diligence or financing arrangements.

Legal Structure and Requirements

A purchase option on a property generally requires notarization to be valid (Section 311b of the German Civil Code (BGB)), as it constitutes a conditional obligation to purchase the property. The option agreement typically specifies: the purchase price (or calculation method), the option period, any option fee, the terms of exercise, and the consequences of non-exercise.

To secure the option right, a preliminary notice may be entered in the land register, which prevents the owner from selling the property to a third party in the meantime. This security in rem is particularly important for the option holder if the option period is longer or if the seller might be facing financial difficulties-since a simple contractual agreement does not protect against the seller’s insolvency.

Practical Applications

Purchase options are particularly common in:

1. Commercial Leases - the tenant is granted the right to purchase the leased commercial property upon expiration of the lease or during the lease term
2. Real Estate Development Projects - developers secure land parcels with purchase options until building permits are obtained
3. Inheritance disputes - co-heirs grant a co-heir a right of first refusal or a purchase option
4. Sale-and-lease-back - the former owner retains a repurchase option
5. Rent-to-own models - tenants pay a monthly premium for the right to purchase the apartment later

The option price (premium) compensates the seller for their commitment during the option period. It can be structured as a lump-sum payment or as a monthly surcharge on the rent.

Purchase Option Clause in the Lease Agreement

A particularly practical arrangement is the purchase option clause in commercial lease agreements: The tenant pays a monthly rent and also has the right to purchase the leased property at a predefined price. For landlords, this offers stable rental income and a potential sale price; for tenants, it offers the opportunity to buy the property at a price fixed today if their own financial situation improves.

Important: The purchase option clause must clearly define how the purchase price is determined (e.g., a fixed amount, market value at the time of exercise, or based on a formula). Unclear pricing terms often lead to disputes.

Risks and Tax Implications

For the option holder, there is a risk of losing the option premium if they do not exercise the option. For the seller, there is a risk of having to sell at a price that is too low if prices rise sharply. From a tax perspective, granting a purchase option can raise issues regarding sales tax and income tax, particularly if it is linked to a lease agreement. The option premium is generally immediately taxable as income for the seller.

Practical Tip for Property Owners in Nuremberg and Franconia

In Nuremberg and the surrounding area, project developers frequently use purchase options to secure commercial properties or properties undergoing conversion while building permits or financing commitments are being obtained. For private owners with succession plans (e.g., children who wish to purchase the family home later), the purchase option is also an attractive tool that allows time without requiring the immediate transfer of the property.

At my-home.de, we have practical experience with these instruments and recommend: Every purchase option should be notarized and-if possible-secured by a land registry annotation. Seek legal advice before signing to avoid pitfalls regarding pricing and timing.

Frequently Asked Questions

Does a purchase option have to be notarized?

Yes, if it establishes the right to purchase a property, notarization is required under Section 311b of the German Civil Code (BGB). A purchase option agreed upon informally is void and cannot be enforced in court. This also applies to options in written lease agreements.

What happens to the option fee if I do not exercise the option?

The option fee (premium) is generally non-refundable-it serves as consideration for the seller’s commitment during the option period. Exceptions may be contractually agreed upon, such as offsetting the fee against the purchase price upon exercise.

Can a purchase option be transferred to a third party?

That depends on the agreement. In principle, a purchase option is assignable as a right under the law of obligations, provided the contract contains no restrictions. If it is to be secured in rem (land registry notation) and transferable to third parties, this must be explicitly agreed upon and secured accordingly.

How does a purchase option differ from a statutory right of first refusal?

A statutory right of first refusal (e.g., that of the tenant under Section 577 of the German Civil Code (BGB) in the case of residential conversion, or that of the municipality under Section 24 of the German Building Code (BauGB)) arises automatically by operation of law, not by agreement. A purchase option, on the other hand, is always based on a contract and can be freely structured-including the purchase price, timeframe, and conditions. The right of first refusal allows the entitled party to step into an existing purchase agreement; the purchase option grants the right to buy at a predefined price.

How is the option fee treated for tax purposes?

The option premium is generally taxable as income for the seller (option grantor) at the time of receipt-regardless of whether the option is exercised later or not. For a private property owner, the premium is included in the calculation of the speculation period and may, if the period has not yet expired, be subject to income tax as part of the proceeds from the sale. For the option holder, the premium is part of the acquisition cost upon exercise of the option and increases the tax base for real estate transfer tax. If the option is not exercised, the option holder incurs a loss that is tax-deductible only in certain circumstances (commercial real estate trading). Since the tax treatment of option fees can be complex in individual cases-particularly with longer terms, multi-year rent-to-own models, or corporate equity interests-we recommend consulting with a tax advisor in advance for all major option agreements.

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