An option contract is an agreement to keep open an offer to sell or lease real property for a fixed period of time. The optionor grants a prospective buyer (“optionee”) the exclusive right to buy or lease a property within a fixed period for a specified price and terms. The optionee is protected from the optionor’s ability to revoke the contract.
The optionor is bound to perform the terms of the option if required by the optionee. The optionee may elect to not exercise the option. The option contract grants the optionee a right, not an obligation to buy a property. This makes the option a unilateral contract.
The optionee provides consideration for the right to purchase the property for a specified price within a fixed time period. The option contract may provide that any money paid to purchase the option be applied as a part of the purchase price in the event the option is exercised. If the optionee does not exercise the option, the money is usually retained by the optionor. Unless prohibited in the terms of the agreement, an option contract is assignable.
Option contracts must be in writing and signed because they fall under the statute of frauds. Options must contain all of the terms and provisions required for a valid contract. The option must clearly specify the length of time the option is effective, the names of the contracting parties, the price of the property, a complete legal description, and the terms of the fee paid.
An option contract provides an optionee more time to secure financing, to investigate feasibility of property development or business ideas, to investigate problems with the property, or to attract partners. An optionee should be careful that the option fee is not too high. The optionor’s main benefit is the fee received from the optionee.