Option Agreement

Option agreements- an important document

An Option Agreement is a document or agreement which is done between a landowner or property owner and a prospective buyer. It is usually done for an amount of money or deposit which is not refundable and wherein the prospective buyer is legally bound to purchase at a particular date or within a set time. It is a wise way for landowners to get an increase in values which is obtained via development without having to go through the cost of getting planning permissions. There might be other situations too – for example, when the developer intends to buy any adjacent land to their site in the future; or if the land which is under development is having multiple owners, a purchaser may buy the whole site in pieces by obtaining option agreements from each owner.

Types of Option Agreements –

There are usually four types of option agreements.

  1. Call Option Agreement– The purchaser has the right to purchase the property from the owner without an obligation.
  2. Put Option Agreement – The owner has the right to sell the property to the purchaser again without an obligation.
  3. Cross Option Agreement – The purchaser gets a call option and the owner gets a put- option.
  4. Reverse Option Agreement– It is usually used to obtain an overage payment wherein the owner gets an option to buy back the property after the particular event happens if the overage payment doesn’t seem happening. The prices of the resale would show in the increase in the value of the land due to the so called trigger event.

Option Agreement

Option Agreement

Option Agreement


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THIS AGREEMENT is made and entered into this ____ day of _________________, 20_____ by and Between __________________________________________________________________________________________ and all title holders to the property (hereinafter referred to as “Optionor/Seller”, and shall include any agent acting on behalf of Optionor/Seller), and ______________________________________________________________________ (hereinafter referred to as “Optionee/Buyer”).
WITNESSETH THAT under the mutual promises and covenants hereinafter set forth, the parties hereto agree as follows:
1.    CONSIDERATION:    In consideration for the granting of this Option, the payment of a non-refundable Option Fee of _______________________________________________ Dollars ($___________) concurrent with the inception of this Option Agreement, (the “Option Consideration”), and other good and valuable consideration in hand paid to Optionor/Seller, the receipt and sufficiency whereof are hereby acknowledged by Optionor/Seller, Optionor/Seller hereby grants and conveys unto Optionee/Buyer an exclusive Option to purchase property herein described.  Payments shall be made payable to: ______________________________________________ and will be delivered or mailed to Optionor/Seller at:
Address: ___________________________________________ City: ______________________, State: _____, Zip: _________
2.    PROPERTY:    That certain real property with such improvements as are located thereon, commonly known as
Address: __________________________________________ City: ______________________, State: _____, Zip: _________.  The full legal description of said Property is the same as is recorded with the Clerk of the Superior Court of _______________________ County in which the Property is located and is made a part of this Agreement by reference.
3.    TERM:    The term of the Option shall be for a period of ____________(___) months, commencing on the _____ day of __________________, 20_____, and expiring on the ______ day of ____________________, 20_____.
4.    PURCHASE PRICE AND METHOD OF PAYMENT:    The initial agreed purchase price of the Property shall be: ___________________________________________________________________________________ Dollars U.S.,  ($________________________), until the _____ day of ____________________, 20____, then shall increase by _______________ percent (_____%) per calendar month thereafter until the exercising of this Option, to be paid in cash or its equivalent, less a credit of _________________________________ Dollars ($_____________) and an additional credit of ___________________ Dollars ($__________) per month credited each month in which Optionee/Buyer pays a monthly payment of ____________________________________ Dollars ($___________) per month paid in advance on or before the ______ day of each and every month, (“Monthly Option Payment”).  Provided Optionee/Buyer makes all payments due under this Option Agreement in a timely manner, then Optionor/Seller will finance the purchase for ________ months at ________% interest or prevailing FHA rates at time Option is exercised, if higher, for the balance of the purchase price upon the accumulation of, or payment of _______% of the Purchase Price, or, at Buyer’s option, Optionee/Buyer may pay the balance in cash or obtain other financing.  Optionee/Buyer shall pay any and all loan and sale closing costs including _______ points to the mortgage, document preparation, credit reports, intangibles tax, and Optionee/Buyer further agrees to create an escrow account for the payment of property taxes and homeowner’s insurance.  Any unsatisfied liens or judgments of Optionee/Buyer must be cleared prior to or upon purchase of the Property.
5.    EXERCISING OPTION:   Option shall be exercised no sooner than the _____ day of ________________, 20____, nor later than the expiration date of this Option Agreement.  The exercise of Option shall be evidenced by delivery of a _______(___) day written notice to exercise, fully executed by Optionee/Buyer, and delivered to Optionor/Seller within the prescribed exercise period.  In the event of the exercise of option, it is understood and agreed that if any Monthly Option Payment is received by owner during the term of this option, said Monthly Option Payment shall not be applied against the purchase price. Only the credit referred to in paragraph 4 above shall be applied to reduce the balance due Optionor/Seller upon exercise of the Option to Purchase.
6.    DEFAULT:   The prompt payment of the Monthly Option Payment is a major consideration in Optionor/Seller granting this Option. Default shall be defined as any Option Consideration payment being made _____ or more days after its due date.  Acceptance of any late Monthly Option Payment does not constitute an automatic waiver of this provision.  In the event of a default, or the expiration of this Agreement without exercising by Optionee/Buyer, then all Monthly Option Payment credits will be forfeited and forever be the property of Optionor/Seller, with no other consideration of any kind whatsoever due to Optionee/Buyer.
7.    CROSS DEFAULT:    If Optionee/Buyer has entered into any other agreements concerning the Property described herein and Optionee/Buyer defaults on any provisions of those agreement(s), then this Agreement shall also be considered in default and, at the option of Optionor/Seller, this Agreement may be voided and all monthly credits will be forfeited and forever be the property of Optionor/Seller.
8.    PURCHASE AND SALE AGREEMENT:   In the event of the exercise of Option, the sale of the Property from Optionor/Seller to Optionee/Buyer shall be evidenced by a sufficient deed and closed as per a standard Real Estate Purchase and Sale Agreement provided by Optionor/Seller.
9.    TITLE:  Optionee/Buyer shall examine title to the Property and notify Optionor/Seller of any objection or defect affecting the marketability of the title to the Property at least thirty (30) days prior to exercising this Option Agreement.  Any expense of curing title, including but not limited to legal fees, discharge of liens and recording fees will be paid by Optionor/Seller.  It is specifically agreed and understood that NO Equitable Title in the Property has been created by this Option Agreement.  Full title vests with Optionor/Seller until Optionee/Buyer exercises the herein described Option to Purchase.   Property will be conveyed subject to all liens, encumbrances, easements and restrictions of record.
10.    NOTICES:   All notices and payments required or permitted to be given to Optionee/Buyer or Optionor/Seller hereunder shall be given in writing and be delivered, if to Optionee/Buyer, at the Property address, and if to Optionor/Seller, at the address as contained in Paragraph 1 above.
11.    SELLER’S DELINQUENCY:  Should Optionor/Seller be delinquent on any payment due under any note and mortgage or should Optionor/Seller cause a notice of foreclosure to be filed, then Optionee/Buyer may at Buyer’s discretion cure the default, and Optionee/Buyer shall receive full credit towards the purchase price for every dollar expended, should Optionee/Buyer exercise this Option.  Should Optionee/Buyer allow Option to expire all sums expended by Optionee/Buyer, under this provision, shall be refunded to Optionee/Buyer.
12.    INSURANCE:  During the term of this Option to Purchase, Optionor/Seller shall insure Property against physical damage, casualty etc., for an amount to be determined by Optionor/Seller’s insurance carrier as the replacement value of the Property.
13.    TRANSFERABILITY:  This Option is not transferable to any other party and can be exercised only by the individual(s) who have signed this Agreement, acting in unison.  This Option shall run with the Property and shall be binding upon any subsequent purchaser of the Property.
14.    ALTERATIONS:  Optionee/Buyer shall not make, or allow to be made, any alterations, installations, repairs or redecoration of any kind to the Property without prior written permission of Optionor/Seller, provided, however, that notwithstanding such consent, all alterations including, without limitation, any items affixed to the Property, shall become the property of Optionor/Seller upon the termination of this Agreement.
15.    REPAIRS:  Optionee/Buyer is responsible for the upkeep and repairs to the Property.  If any single repair would exceed $__________, it shall be reported to Optionor/Seller in writing who shall be given the opportunity to arrange for the repair.  Optionor/Seller would be responsible for any amount in excess of $___________, Optionee/Buyer must pay up to this amount directly to the supplier or repairperson at the time of the purchase or repair.  As the future purchasers of the Property, Optionee/Buyer(s) further waive any and all rights they may have under repair provisions under applicable _____________________ law regarding the landlord being responsible for all repairs.
16.    TIME:    Time is of the essence of this Option to Purchase Agreement.

17.    SEVERABILITY:   In the event that any part of this Agreement is construed as unenforceable, the remaining parts of this Agreement shall remain in full force and effect as though the unenforceable part or parts were not written into this Agreement.
18.    GENDER:   All references to Optionor/Seller or Optionee/Buyer herein shall be construed to include the plural as well as the singular, and the masculine shall include the feminine and neuter where the context of this Agreement may require.
19.    ENTIRE AGREEMENT:  This Agreement and any attached addendum constitutes the sole and entire Agreement between the parties and no representation, promise, or inducement not included in this Agreement, oral or written, shall be binding upon any party hereto.
20.    SPECIAL STIPULATIONS:  The following stipulations shall control in the event of conflict with any of the foregoing:
Optionee/Buyer understands and is fully aware property is in need of repairs including ___________________________________________________________________________________________________.  Optionee/Buyer has offered and management herewith agrees to allow Optionee/Buyer to repair items as stated herein and more fully described in the “Scope of Work” forms contained in the Independent Contractor Agreement.  Optionee/Buyer is fully aware of the extent of the work required, is experienced in these types of repairs and offers to complete stated repairs in a timely manner in exchange for compensation.  Failure of Optionee/Buyer to complete the repairs in a timely and workmanlike manner shall result in a default under the Independent Contractor Agreement, requirement for payment in full under the Promissory Note and possible termination of this Option Agreement at Optionor/Seller’s option.
IN WITNESS WHEREOF, the parties have signed this Agreement the day and year first above written.
_____________________________________________        _____________________________________________
Optionor/Seller or Agent for Optionor/Seller                          Optionee/Buyer
_____________________________________________        _____________________________________________
Optionor/Seller                                                                     Optionee/Buyer