How does the Option to Purchase work when you buy private property?

What an Option to Purchase is

An Option to Purchase is a contract between the seller and the buyer. The seller grants the buyer the sole right to buy the property at an agreed price within a fixed option period. In return, the buyer pays an option fee. While the option is open, the seller cannot sell to anyone else.

At the end of the option period the buyer either exercises the option, which turns it into a binding agreement to buy, or lets it lapse. For private property there is no fixed form: the OTP is drafted for each sale, usually on a standard set of conditions of sale, and its terms can be negotiated before you sign.

The option fee and the option period

By market practice rather than law, the option fee for private property is usually 1% of the purchase price. Law firm guides describe the option period as typically around 14 days, and sometimes up to 21 days. None of these figures is fixed, so the fee, the period, the completion date and any conditions are all things to raise before you sign. They are much harder to change afterwards.

If you decide not to go ahead and let the option period run out, the option lapses and the option fee is generally forfeited to the seller, unless the parties have agreed otherwise.

Exercising the option

To proceed, you exercise the option within the option period, usually by signing the acceptance copy and paying a further deposit, commonly 4% of the price. This deposit is typically paid to the seller's lawyers, who hold it as stakeholders until completion.

Once exercised, the OTP becomes the contract between you and the seller. There is generally no separate sale and purchase agreement. Unless the parties agree otherwise, the sale is also governed by the Law Society's Conditions of Sale 2012, which cover matters the OTP does not deal with, such as completion timelines, interest if completion is late, and what happens if one side fails to complete.

After you have exercised, walking away is a breach of contract. Your deposit is generally at risk and the seller may also have further claims, including for damages or an order that you complete the purchase.

Using the option period well

The option period is when most of the preparation happens. Before you exercise, it is sensible to:

• have a lawyer review the OTP, ideally before you sign it and at least before you exercise it
• confirm that your bank loan is actually approved, not just indicated
• check how much CPF you can use, since it affects how much cash you need at each stage
• work out the stamp duty, which falls due within 14 days of exercise
• raise anything unusual about the property, its title or the seller's circumstances

From exercise to completion

After exercise, your lawyer may lodge a caveat with the Singapore Land Authority to give notice of your interest in the property. The lawyers then carry out searches and requisitions, arrange the stamp duty payment and work with the bank on the loan.

At completion you pay the balance of the price, typically the remaining 95% after the option fee and exercise deposit, and the seller hands over the property, usually with vacant possession unless agreed otherwise. Law firm guides commonly put the time from exercise to completion for a private resale at about 8 to 12 weeks, depending on the terms of the OTP and the financing.

When to speak to a lawyer

The best time is before you sign the OTP, while the price, deadlines and conditions can still be changed. A lawyer can point out terms that shift risk onto you, check that the completion date fits your loan and any sale of your current home, and tell you what you will need to pay and when.