Option to Purchase Agreement
Option to Purchase Generator
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Signature Requirements
E-Signature Valid
Option to purchase agreements are generally valid with electronic signatures. Recording the option with the county recorder's office is recommended to protect the optionee's interest against third-party purchasers.
Sample Option to Purchase Generated by Legal Tank
Option to Purchase
Option Grant & Consideration
This Option to Purchase Agreement ("Agreement") is entered into as of [____________] by and between [Owner Name] ("Owner") and [Optionee Name] ("Optionee"). In consideration of the option fee of $[____________] (the "Option Fee") paid by Optionee to Owner concurrently with the execution of this Agreement, the receipt and sufficiency of which Owner hereby acknowledges, Owner hereby grants to Optionee the exclusive and irrevocable option (the "Option") to purchase the real property located at [____________], [City], [State] [Zip], more particularly described in Exhibit A hereto, together with all improvements, fixtures, and appurtenances thereon (the "Property"), upon the terms and conditions set forth in this Agreement. The Option is personal to Optionee and may not be transferred or assigned without Owner's prior written consent.
The Option Fee [shall be applied in full toward the Purchase Price (as defined in Article II) upon Optionee's exercise of the Option / is non-refundable and shall be retained by Owner regardless of whether the Option is exercised, and shall not be credited toward the Purchase Price]. Optionee acknowledges that the Option Fee represents fair and adequate consideration for the Option, and that the Option is binding and irrevocable during the Option Period regardless of any change in market conditions, the Owner's financial circumstances, or any offer from a third party. Owner represents that the Property is not subject to any existing purchase agreement, right of first refusal, or other option that would conflict with or impair this Option.
Exercise Terms & Purchase Price
Optionee may exercise the Option at any time during the period commencing on the date of this Agreement and expiring at [11:59 p.m. / 5:00 p.m.] on [____________] (the "Option Period"), by delivering written notice of exercise to Owner at the address set forth herein (the "Exercise Notice"). The Exercise Notice must be delivered by [certified mail, return receipt requested / personal delivery / overnight courier with confirmation of receipt] and shall be effective only upon actual receipt by Owner within the Option Period. Time is of the essence with respect to the delivery of the Exercise Notice. Facsimile or electronic transmission of the Exercise Notice shall [be / not be] effective unless followed by delivery of an original within [____] days.
The purchase price for the Property shall be $[____________] (the "Purchase Price"), [payable in full in cash at closing / subject to adjustment as follows: [____________]]. Upon timely exercise of the Option, the parties shall execute a [Purchase and Sale Agreement / Deposit Receipt and Agreement] in the form attached hereto as Exhibit B (the "Purchase Agreement") within [____] days of the Exercise Notice, with a closing date no later than [____] days following execution of the Purchase Agreement or [____________], whichever is earlier. Optionee shall deposit an earnest money deposit of $[____________] with [Escrow Agent / Title Company] within [____] days of exercise. All terms of the purchase and sale, including representations and warranties, title requirements, contingencies, and closing conditions, shall be governed by the Purchase Agreement.
Property Condition & Inspection
Owner grants Optionee and its agents, employees, contractors, and authorized representatives a license to enter the Property during the Option Period, upon not less than [____] hours' prior notice to Owner, for the purpose of conducting inspections, surveys, tests, and studies, including environmental assessments, structural inspections, soil tests, and title examinations (collectively, "Inspections"). All Inspections shall be conducted at Optionee's sole cost and expense and shall not unreasonably interfere with Owner's use and enjoyment of the Property. Optionee shall promptly repair any damage caused by Inspections and shall indemnify Owner from claims arising from Optionee's entry onto the Property. Owner shall provide Optionee with copies of all available surveys, environmental reports, title documents, and government approvals in Owner's possession within [____] days of the date hereof.
Owner represents and warrants to Optionee that, as of the date of this Agreement: (a) Owner has fee simple title to the Property, subject only to the permitted exceptions listed in Exhibit C; (b) there are no pending or, to Owner's actual knowledge, threatened condemnation or eminent domain proceedings affecting the Property; (c) to Owner's actual knowledge, there are no violations of applicable zoning, building, or environmental laws with respect to the Property that have not been disclosed to Optionee in writing; (d) no leases, licenses, or occupancy agreements affecting the Property are in effect other than as disclosed in Exhibit D; and (e) Owner has received no written notice from any governmental authority of any proposed change in zoning or use restrictions affecting the Property.
Expiration & Default
If the Option is not exercised by delivery of the Exercise Notice to Owner on or before the expiration of the Option Period, the Option and this Agreement shall automatically expire and terminate, and all rights of Optionee hereunder shall cease and be of no further force or effect. Upon expiration, Optionee shall promptly execute and deliver to Owner a quitclaim deed or other instrument reasonably requested by Owner to confirm that Optionee has no interest in the Property, and any memorandum of option recorded by Optionee shall be released of record at Optionee's expense. Optionee's right to receive the Option Fee credit shall be extinguished upon expiration of the Option without exercise.
If Owner defaults in any material obligation under this Agreement, including by failing to sell the Property to Optionee upon timely exercise of the Option, Optionee shall be entitled to: (a) specific performance of Owner's obligation to convey the Property; (b) a refund of the Option Fee plus interest; (c) damages for all losses proximately caused by Owner's default; and (d) reimbursement of Optionee's reasonable attorneys' fees and costs incurred in enforcing this Agreement, to the extent permitted by applicable law. Owner acknowledges that the Property is unique and that monetary damages may not be an adequate remedy for Owner's default, and Owner waives any objection to Optionee's right to seek specific performance in a court of competent jurisdiction.
What Is a Option to Purchase?
An option to purchase agreement is a contract that gives one party (the optionee or buyer) the exclusive right, but not the obligation, to buy a specified property or asset from the other party (the optionor or seller) at a predetermined price within a defined time period. In exchange for this right, the buyer typically pays the seller a non-refundable option fee (also called option consideration). During the option period, the seller is bound to sell if the buyer exercises the option, but the buyer has no obligation to purchase.
Option agreements are widely used in real estate transactions, business acquisitions, intellectual property licensing, and commodity trading. In real estate, options allow potential buyers to lock in a purchase price while conducting due diligence, securing financing, obtaining zoning approvals, or waiting for market conditions to improve. The option creates certainty for both parties, the buyer knows the maximum price and the seller knows the minimum consideration.
The key characteristic of an option agreement is its one-sided nature: the buyer has the right to purchase but can walk away (forfeiting only the option fee), while the seller is obligated to sell if the option is exercised. This asymmetry is balanced by the option consideration, which compensates the seller for keeping the property off the market during the option period. Options are commonly used in lease-option (rent-to-own) arrangements where monthly rent payments may be partially credited toward the purchase price.
Legal Tank provides option to purchase agreement templates for real estate and business transactions that protect both parties' interests while clearly defining the exercise procedures and purchase terms.
Why You Need a Option to Purchase
Real estate developers use options to control land while obtaining entitlements and permits, limiting their financial exposure during the approval process
Lease-option agreements allow tenants to rent a property with the option to buy, building equity through rent credits while testing the property
Business buyers use options to lock in acquisition terms while completing due diligence, securing financing, and obtaining regulatory approvals
Investors use options to control assets with minimal capital outlay, leveraging the option period to arrange financing or find end buyers
Key Sections in a Option to Purchase
Property or Asset Description
Identify the property or asset subject to the option with a complete legal description (for real estate) or detailed specification (for business assets). The description must be sufficiently precise to identify exactly what the buyer has the option to purchase.
Option Price and Exercise Price
State the option consideration (the amount paid for the option itself) and the purchase price that will apply if the option is exercised. Specify whether the option consideration is credited toward the purchase price or is non-refundable and separate from the purchase price.
Option Period and Exercise Procedure
Define the length of the option period (start and end dates) and the exact procedure for exercising the option, typically written notice delivered by a specific method within the option period. Late or improper exercise results in the option expiring worthless.
Terms of the Purchase Contract
Include or reference the terms that will govern the purchase if the option is exercised, closing timeline, financing contingencies, title requirements, representations and warranties, and any other material terms of the sale.
Seller's Obligations During Option Period
Specify the seller's obligations while the option is open, maintaining the property's condition, not encumbering it, not selling to others, providing access for inspections, and continuing insurance coverage.
Option to Purchase Legal Requirements
Option agreements for real estate must be in writing to satisfy the Statute of Frauds and should be recorded to protect against third-party sales
The option must be supported by consideration (the option fee), an option without consideration is merely an offer that can be revoked at any time
The exercise procedure must be strictly followed, courts generally enforce option deadlines and procedural requirements exactly as written
The property description must be sufficiently definite to satisfy the statute of frauds and identify the subject matter with certainty
If the option agreement includes a lease component (lease-option), landlord-tenant laws and regulations also apply
Common Option to Purchase Mistakes to Avoid
Failing to record the option agreement (for real estate) to prevent the seller from selling to a third party during the option period
Not clearly defining the exercise procedure, leading to disputes about whether the option was properly and timely exercised
Setting an option period that is too short to complete necessary due diligence, financing, or approvals
Omitting the purchase terms that will apply if the option is exercised, requiring additional negotiation at exercise time
Confusing an option with a right of first refusal, which only gives the holder the right to match a third-party offer
Not specifying whether the option consideration is credited toward the purchase price, which is a common point of dispute
Frequently Asked Questions About Option to Purchases
What is an option to purchase agreement?
How does an option to purchase real estate work?
What is an option fee in a purchase option?
Is an option to purchase agreement legally binding?
What is the difference between an option to purchase and a right of first refusal?
What happens if the option to purchase expires?
Can an option to purchase be assigned?
Does an option to purchase need to be recorded?
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