Option Contracts: Who Is Bound, Consideration, and Exercising the Option

An option gives its holder the right to buy on agreed terms during a specified period, without requiring the holder to buy. The owner is bound by an enforceable option; the holder decides whether to exercise it.

Jump to: The parties · Consideration · Exercise and expiration · Practice

Keep the parties and stages separate

The FREC Course I syllabus, Section 11 treats an option as a unilateral contract. In that exam context, the owner is obligated to sell if the holder properly exercises; the holder has not yet promised to buy. This does not mean the holder can ignore the option agreement's own payment or notice requirements.

What does the option payment buy?

Consideration supports the promise to keep the purchase opportunity open. Distinguish that payment from the purchase price and from an earnest-money deposit under a purchase contract. Whether the option payment is refundable or credited at closing depends on the agreement; do not assume either treatment.

Cornell’s option overview explains consideration, the optionor and optionee, and compliance with the exercise terms. For a Florida real-property transaction, use a signed writing that satisfies the applicable Statute of Frauds; a casual verbal promise is not a substitute for a properly prepared option.

Worked example: buying time to decide

An owner grants a buyer a 45-day option to purchase a parcel for $280,000. The buyer pays $2,000 for the option. The written agreement says the fee is nonrefundable, will be credited toward the price if the buyer purchases, and requires written exercise notice received by the owner before the deadline.

• Buyer decides not to purchase: the option can expire; the example's $2,000 fee is not refunded.
• Buyer properly exercises on time: the purchase proceeds under the agreed terms, with the specified $2,000 credit.
• Buyer merely thinks about purchasing: private intent is not the required notice. Follow the specified method and deadline.

The fee treatment above is an express fact of this example, not a rule for every option. An option's exercise deadline and the later closing date are different dates.

Do not confuse nearby concepts

• Purchase contract: generally commits both buyer and seller, subject to its terms and contingencies.
• Lease with an option: combines rental obligations with a separate purchase choice; paying rent alone does not necessarily exercise it.
• Right of first refusal: typically depends on a trigger such as the owner's decision to sell or a third-party offer. An option provides the purchase right on its own agreed terms.

Try it yourself

1. Who holds the choice to purchase: optionor or optionee?
2. In the example, is the $2,000 automatically returned when the buyer lets the option expire?
3. Is deciding internally to buy enough when the contract requires written notice received by a deadline?

Answers and explanations

1. Optionee. The optionor granted the right.
2. No. This agreement expressly makes it nonrefundable.
3. No. Proper exercise requires the stated notice and timing.

References checked October 20, 2026. Use qualified legal help to prepare or interpret an actual option agreement.

Keep studying

Review valid, void, voidable, and unenforceable contracts. Return to the exam-prep guide.

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