Option Agreements: 6 Important Points
What is it?
An option agreement grants one party the exclusive right to purchase a specific asset or property at a set price for a designated period of time. During this time period, no one else will be entitled to purchase the property or asset. The sale price of the property cannot be changed during the term set out in the agreement. Once the term expires, the potential purchaser’s rights are terminated and the owner may do what he or she chooses with the property.
Application for small business people
Option agreements are inherently flexible in nature. The potential purchaser has the right to make the purchase, but they are not obliged to do so. There are no negative consequences if they change their mind or are unable to raise the necessary capital. This flexibility is one of the major benefits of option agreements for small business people. Small business people may need time before making a significant purchase, but they also want to ensure that they don’t miss out on a good opportunity.
Option agreements enable a potential purchaser to lock in a set price for an asset while he or she assesses whether to go ahead with the purchase. The purchaser can use this time to carry out due diligence into the sale, or to obtain finance. The option agreement takes the property off the market for this time, so no one else is able to buy it. It also eliminates the risk of market price fluctuations.
Option agreements are commonly used in real estate and stock trading.
6 key things to consider
Before entering into an option agreement, the following issues should be carefully considered:
- Does the potential purchaser have to pay a fee to enter into the option agreement?
- Is the fee refundable or deductible from the price should they go ahead with the purchase?
- What is the term of the option agreement?
- What asset or property is covered by the agreement?
- What are the obligations of the seller?
- What happens if the property is damaged during the term of the option agreement?
Want my view on your own situation?
Book an initial consultation: up to two hours with me by phone for a fixed fee of $1,650 (including GST), then a short written note of my advice and next steps. If my conflict check means I can't act, I'll refund your fee in full. To check anything first, email
info@klaw.com.auor call
(07) 3103 3199.
Joe Kafrouni, Accredited Specialist in Business Law, Kafrouni Law
Disclaimer: This article is general information only and is not legal advice. Before acting on it, get advice on your own circumstances. To the extent the law allows, Kafrouni Law accepts no liability for any loss arising from reliance on it. This article is the copyright of Kafrouni Law.
What People Say
Book an initial consultation
An initial consultation is the best way for us to find out whether, and how, I can help. It suits business owners and directors facing a decision that matters. You get my considered view of your situation, not just a first impression.
The fee is a fixed $1,650 (including GST). It covers a phone consultation of up to two hours, plus up to one hour of my time to consider the material you send me beforehand and to prepare my written note afterwards. Here is how it works:
1. When you book, you tell me briefly what the matter is about and who else is involved, so I can carry out a conflict check and confirm I’m free to act. If I can’t act for you, I’ll refund your fee in full.
2. I tell you what information and documents I’d like to see, and I consider them before we speak.
3. We talk it through by phone. I give you my initial advice, the options I see and what I’d do in your shoes.
4. Afterwards, I send you a short written note of my advice and the next steps I recommend.
If I can help further, I’ll explain how. If I can’t, I’ll say so. You are under no obligation to engage me further. If your matter needs more than this, I’ll send you a proposal setting out how I can help and an estimate of my fees. No further work starts until you accept it.
I keep only a limited number of consultation times. If none suits you, or you’d like to check anything before booking, email info@klaw.com.au and I’ll do my best to accommodate you.