Real Estate Option Agreement: Definition, Terms, Example
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What is a Real Estate Option Agreement?
A real estate option agreement is a legal agreement between a seller and a buyer or investor that allows the buyer or investor the right to purchase a property. An option agreement usually gives the buyer or investor a specific timeframe to make their decision whether or not to purchase the property.
Also known as a purchase option agreement, this document allows purchasers to reserve the right to make that decision at a later date when conditions may have changed. Having a real estate option agreement does not force a buyer or investor to purchase a property, but simply gives them the option to at a later date.
Common Sections in Real Estate Option Agreements
Below is a list of common sections included in Real Estate Option Agreements. These sections are linked to the below sample agreement for you to explore.
Real Estate Option Agreement Sample
| That part of the Southwest Quarter (SW 1/4) of Section Eighteen (18), Township One Hundred Thirty (130) North, Range Forty-nine (49) West of the Fifth Principal Meridian which lies north of the railroad right of way, which tract consists of roughly 80 acres, more or less. |
| 1. | Right to Enter Property and Due Diligence. Optionor agrees that Optionee and/or third-parties directed by Optionee, shall have the right to enter upon the Property at any time from the date of this agreement until closing in order to conduct due diligence investigations upon the Property by giving Optionor one (1) day advanced written or verbal notice. Any due diligence costs and work performed, including, but not limited to, surveys and environmental studies conducted, shall be at the sole cost of the Optionee. | ||
| 2. | Crop Damage. In the event that Optionee’s due diligence and/or conveyance of the Property to Optionee shall occur after Optionor, or its tenants and/or agents, plants crops, but before harvest of those crops, the parties hereto mutually agree that Optionor shall have the right, upon notice to the Optionee and at the Optionee’s convenience, to harvest any crops not destroyed by the Optionee in the process of its due diligence and/or its construction of an ethanol plant and related improvements thereto. The Optionee shall have no duty to preserve any of such crops, and the Optionor accepts as liquidated damages (in lieu of any and all other damages) an amount equal to the most recent Richland County USDA proven yield for the commodity planted on the Property in the year of damage multiplied by the Richland County USDA four year average price for the commodity grown in the year of damage, multiplied by the number of acres, or fractional acres, of crop destroyed on the Property. If the parties cannot mutually agree upon the number of crop acres damaged, the number of such cop acres damaged shall be measured by an independent third-party as the parties hereto may mutually identify. | ||
| 3. | Termination Of Tenants. Regardless of when or if Optionee provides notice of the exercise of its option provided hereunder, in the event this option is exercised, Optionor agrees to provide timely notice to any tenant of the Property of the termination of such tenant’s tenancy. Such notice shall follow the form required for the termination of farm tenancies under the applicable lease terms involved and/or North Dakota Law. |
| 4. | Title Examination. No later than 20 days from delivery of notice of exercise of the option granted hereby, the Optionor shall furnish the Optionee a duly certified Abstract of Title to the Property, continued to a recent date, showing good and marketable title in the Optionor, free and clear of all liens and encumbrances, except as noted below. The Optionee shall have 15 days time to examine said abstract of title and within said period of time shall promptly notify the Optionor of all objections thereto in writing. If the title to the Property is unmarketable, the Optionor shall have a period of 90 days in which to correct the title and make it marketable. If the title to the Property cannot be made marketable within said period of time or such further time as may be granted by the Optionee, the Optionee shall be entitled to the return of the Option Consideration paid under this Agreement, but otherwise this Agreement shall be wholly null, void and unenforceable. | ||
| 5. | Title, Liens and Encumbrances. At closing, Optionor shall transfer title to Optionee by a Warranty Deed conveying good and marketable title to the Optionee. The sale and transfer by Warranty Deed shall be free of all liens and encumbrances except for the following: |
| A. | Building and zoning laws, ordinances, sate and federal regulations, provided they do not materially and adversely affect the use of the property; | ||
| B. | Utility, drainage and other easements of record which do not materially and adversely interfere with the use of the Property. |
| 6. | Taxes and Special Assessments. The Optionor agrees to pay all real estate taxes and assessments for special improvements levied or assessed for the year prior to closing. Real estate taxes, and assessments for special improvements for the year of closing shall be prorated between the Optionor and the Optionee and in the event the exact amount of the taxes and assessments for that year are not yet known, the amount to be prorated shall be based on the real estate taxes and assessments for special improvements for the previous year. Optionee agrees to pay the real estate taxes and assessments for special improvements for all subsequent years. | ||
| 7. | Closing and Possession. Possession is to be given immediately upon completion of closing. Closing shall occur after approval of title and PRIOR TO POSSESSION, but in no event later than 90 days from the date of the notice of exercise of the option, or as otherwise agreed upon by the parties. |
| 8. | Default. In the event either party has fulfilled all of its obligations hereunder and all conditions precedent and concurrent to closing for which it is responsible and the other party fails to fulfill its obligations hereunder and continues to fail and refuses to fulfill its obligations hereunder for more than 30 days after receipt of written notice of such default from the non-defaulting party, the non-defaulting party may either: in the case of the Optionee 1) terminate this Agreement, in which event it shall be entitled to retain of the Option Consideration and any other monies paid hereunder to Optionor, and such termination and Option Consideration shall be the sole remedy and damages available; or 2) pursue any legal and/or equitable remedy available to it; or in the case of the Optionor 1) terminate this Agreement, in which event it shall be entitled to retain the Option Consideration and any other monies paid hereunder by Optoinee to Optionor, and such termination and retainage shall be the sole remedy and damages available to the Optionee, or 2) pursue any legal and/or equitable remedy available to it. | ||
| 9. | Disclaimer — the Property is sold AS IS. Except for warranty of title, Optionor will give no warranty and will make no representations to Optionee of any kind. THERE ARE NO EXPRESS WARRANTIES AND OPTIONOR SPECIFICALLY DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WARRANTIES OF HABITABILITY, IMPLIED WARRANTIES, IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. THE PROPERTY WILL BE SOLD AS IS, WITHOUT WARRANTY OF ANY KIND, WITH ALL FAULTS AND IN ITS PRESENT CONDITION. THE PROPERTY WILL ALSO BE SOLD WHERE IS AND NO WARRNATY OR REPENSTATIONS WITH RESPECT TO BOUDNARY LINES WILL BE MADE BY OPTIONOR. Optionee must satisfy Optionee that the Property is entirely within boundary lines expected. Optionee represents to the Optionor that Optionee takes the Property in its present condition with all its faults. Optionee has been or will be provided full and complete access to the Property and the full right to examine and test the same. Optionee is relying solely upon such access, investigation and Optionee’s testing and is not relying upon any representation or warranty of Optionor. |
| If to Optionor: | Hankinson Community Development Corporation | |||||
| Incorporated | ||||||
| c/o Robert Wurl | ||||||
| Lincoln State Bank | ||||||
| 302 Main Ave. S. | ||||||
| Hankinson, ND 58041 | ||||||
| With a copy to: | ||||||
| Fred Strege | ||||||
| Smith, Stregge & Fredricksen, Ltd. | ||||||
| Box 38 | ||||||
| Wahpeton, ND 58074 | ||||||
| If to Optionee: | Gold Energy, LLC | |||||
| c/o Michelle Swenson | ||||||
| 1183 6th Street South | ||||||
| Wahpeton, ND 58075 |
OPTIONOR:
|
OPTIONEE: | |
HANKINSON COMMUNITY DEVELOPMENT CORPORATION INCORPORATED |
GOLD ENERGY, LLC |
By:
|
/s/ David Paulson | By: | /s/ Daniel O. Skolness | |||||||
| David Paulson, President | Its [Handwritten: Vice President] | |||||||||
| STATE OF NORTH DAKOTA | ) | |||||||||
| )SS: | ||||||||||
| COUNTY OF RICHLAND | ) | |||||||||
| /s/ Lori J. Hubrig | ||||||||
| Notary Public | ||||||||
| My Commission Expires: 7-12-06 | ||||||||
| [Stamped: LORI J. HUBRIG | ||||||||
| Notary Public | ||||||||
| State of North Dakota | ||||||||
| My Commission Expires Aug. 29, 2010 | ||||||||
STATE OF
|
) | |||||||
| ) SS: | ||||||||
COUNTY OF
|
) | |||||||
| /s/ Fred Strege | ||
| Notary Public | ||
| My Commission Expires: | ||
| [Stamped: Fred Strege | ||
| Notary Public | ||
| State of North Dakota | ||
| My Commission Expires Sept. 30, 2007 |
Reference:
Security Exchange Commission - Edgar Database, EX-10.12 24 c00246exv10w12.htm REAL ESTATE OPTION AGREEMENT, Viewed October 4, 2021, View Source on SEC.
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Rebecca R.
Experienced attorneyin leasing, NDA, family law, commercial real estate, immigration and employment . Well versed in internal and external policy document and manual creation.
"Quickly understood our requirements and created a customized doc to meet our needs with a fast turnaround... We'd definitely work with Rebecca again!"
Thomas D.
I graduated from the University of Wisconsin Law School. Upon graduation, I went to McDermott, Will & Emery in Chicago and practiced corporate, real estate and tax law. I then joined Godfrey & Kahn where I became a shareholder in the real estate group, head of real estate lending and continued to practice corporate law. At these firms, I received excellent training and represented some of the largest and most innovative clients in the US. After practicing law for 15 years, I founded a real estate development company. I built a multi-million dollar company and developed many significant projects. I sold the company and was recruited for senior positions by two other real estate companies. I continued to hone my legal skills at these companies by negotiating and drafting countless documents for my businesses. The combination of my legal and business experience helps me foster the growth of clients' businesses, solve their problems and guide them through difficult matters.
"There may have been some response items, but otherwise Tom was a nice man who helped me with putting together needed documentation."
Jason H.
Jason has been providing legal insight and business expertise since 2001. He is admitted to both the Virginia Bar and the Texas State Bar, and also proud of his membership to the Fellowship of Ministers and Churches. Having served many people, companies and organizations with legal and business needs, his peers and clients know him to be a high-performing and skilled attorney who genuinely cares about his clients. In addition to being a trusted legal advisor, he is a keen business advisor for executive leadership and senior leadership teams on corporate legal and regulatory matters. His personal mission is to take a genuine interest in his clients, and serve as a primary resource to them.
"Wonderful attorney! He was extremely professional, answered all of my questions and was patient with my complicated legal situation. Don’t hesitate to hire him."
Faryal A.
Ms. Ayub is an attorney licensed to practice in Texas. Before moving to the US, she has a number of years of experience in contract review, analysis and drafting. Ms. Ayub is available to help you with your legal problems, as well as filling LLC and other business entity formation documents. To know more about her practice, please visit https://ayublawfirmpllc.com/.
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Brianna N.
Brianna is a well-respected New York licensed attorney with a Juris Doctorate degree in law from Touro College Jacob D. Fuchsberg Law School and bachelor’s degree in Business Administration and Management from Dowling College. Since becoming an attorney, she has practiced in various areas including business law, corporate law, residential real estate, commercial real estate, criminal law, traffic law, employment law, landlord tenant law, estate planning, and has represented intermediaries in procurement and the personal protective equipment industry. Brianna has broad and extensive business experience; She is an entrepreneur and co-owner of a microtechnology manufacturing company that was built by her and her partner, where she also served as the Chief Legal Officer and Human Resource Manager for the company. While building the manufacturing business, she created a brokerage firm for business transactions and has managed several other businesses which she has ownership interest in. Brianna’s involvement in these various businesses over the past 15 years provides a unique skillset to her clients; Not only does she understand contractual principals and obligations from a legal perspective while drafting and negotiating agreements, but she also has the foresight, experience, and ability to ensure the agreement reflects the practical aspects of the business. Based on the client’s needs and desired outcome, she has the forethought to cover different angles that would be overlooked from a legal standpoint, and as a result she is able to help prevent unforeseen business ramifications. She conducts extensive risk assessments on behalf of her clients and minimizes exposure to potential liability without “over lawyering” agreements. One of Brianna’s main areas of focus is drafting and negotiating agreements. Negotiation is a passion of hers which was applied in law school while she was a member of the Alternative Dispute Resolution Society, notably winning Touro Law School’s intraschool negotiation competition. In her more recent years, Brianna has removed herself from her various business interests to focus on her law practice. Brianna has a strong moral compass and believes in quality over quantity. She treats every client as a top priority; thus, she will not take on many cases at a time because she wants to give each client the focus and attention they deserve. She has sharp attention to detail and is a forceful advocate for every client. Brianna has broad and extensive business experience; She is an entrepreneur and co-owner of a microtechnology manufacturing company that was built by her and her partner, where she also served as the Chief Legal Officer and Human Resource Manager for the company. While building the manufacturing business, she created a brokerage firm for business transactions and has managed several other businesses which she has ownership interest in. Brianna’s involvement in these various businesses over the past 15 years provides a unique skillset to her clients; Not only does she understand contractual principals and obligations from a legal perspective while drafting and negotiating agreements, but she also has the foresight, experience, and ability to ensure the agreement reflects the practical aspects of the business. Based on the client’s needs and desired outcome, she has the forethought to cover different angles that would be overlooked from a legal standpoint, and as a result she is able to help prevent unforeseen business ramifications. She conducts extensive risk assessments on behalf of her clients and minimizes exposure to potential liability without “over lawyering” agreements. Additionally, she specializes in drafting and negotiating agreements. Negotiation is a passion of hers which was applied in law school while she was a member of the Alternative Dispute Resolution Society, notably winning Touro Law School’s intraschool negotiation competition. In her more recent years, Brianna has removed herself from her various business interests to focus on her law practice. Brianna has a strong moral compass and believes in quality over quantity. She treats every client as a top priority; thus, she will not take on many cases at a time because she wants to give each client the focus and attention they deserve. She has sharp attention to detail and is a forceful advocate for every client.
"Brianna gave me a very reasonable quote compared to other bids, and she's super responsible and thorough with her job, an absolute delight to work with, highly recommended!"
January 16, 2021
Jessica K.
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Real Estate Option Agreement
Washington
Can an option agreement for real estate be terminated if the option holder fails to exercise their right within the specified timeframe?
I have entered into a real estate option agreement with a potential buyer, where they have the right to purchase the property within a specified timeframe. However, the option holder has failed to exercise their right within the agreed-upon timeframe. I would like to know if I have the legal grounds to terminate the option agreement and explore other potential buyers for the property.
Merry K.
Based on what you’ve described, once the option period has expired without the buyer exercising their right to purchase, the option agreement is generally no longer enforceable and you are free to market the property to other buyers. To protect yourself, review the exact language of the option agreement to confirm whether it provides for automatic termination upon expiration, and consider sending the buyer a written notice—ideally by both regular and certified mail—confirming that the option has lapsed and that you are releasing the property for sale to others. Please be advised that I provided this information for educational purposes, and no attorney client relationship has been formed.
Real Estate
Real Estate Option Agreement
Georgia
Can a Real Estate Option Agreement be terminated if the seller sells the property to a third party before the option period expires?
Can a Real Estate Option Agreement be terminated if the seller sells the property to a third party before the option period expires? I entered into a Real Estate Option Agreement with a seller, giving me the option to purchase their property within a specified time frame. However, before the option period expired, the seller sold the property to a third party. I am now unsure of my rights and whether I can enforce the option agreement or seek any remedies for the seller's breach of contract.
Jerome L.
Hi there, If you had a valid and enforceable Real Estate Option Agreement, the seller likely breached that agreement by selling the property to a third party before the option period expired. Here’s what you should know: Your Rights Under an Option Agreement: An Option Agreement is Legally Binding: Once you pay consideration for an option to purchase property within a specified time frame, the seller is legally obligated to keep that offer open. They cannot sell the property to someone else during that time without breaching the agreement. The Sale Does Not Automatically Terminate the Option: The seller's transfer to a third party does not cancel your rights under the option agreement. In fact, the third party may have taken the property subject to your option, especially if the agreement was recorded or the buyer had notice. You May Be Entitled to Legal Remedies: Your options may include: Specific Performance: Forcing the sale of the property to you if it is still possible. Monetary Damages: If specific performance is not available, you could pursue damages for breach of contract. Equitable Remedies: Depending on the circumstances, there may be claims for fraud, bad faith, or interference with contractual relations if the third party knew about your option. Recording the Option Agreement Strengthens Your Claim: If your option was recorded in the public land records, it puts all third parties on notice of your rights. Even if it wasn’t, the seller and potentially the third party may still be liable based on what they knew. I recommend speaking with an attorney as soon as possible to review your agreement, assess the timeline, and determine the best course of action based on your state’s laws. If you are in Georgia or need guidance on how to proceed, I would be glad to help. Best regards, Jerome Lucas Newell, Esq. Real Estate & Contracts Attorney
Real Estate
Real Estate Option Agreement
New York
Can a real estate option agreement be terminated if the property owner does not fulfill certain conditions within the specified time frame?
I am currently in the process of negotiating a real estate option agreement with a property owner, where I have the right to purchase the property within a certain time frame at a pre-determined price. However, the agreement includes certain conditions that the property owner must fulfill, such as obtaining certain permits or completing renovations, within a specified time period. If the property owner fails to meet these conditions within the given timeframe, can the option agreement be terminated, or do I still have the right to purchase the property at the agreed-upon price? I am seeking clarification on the legal implications of such a situation.
Damien B.
If your option agreement explicitly states that the property owner must meet certain conditions (e.g., obtaining permits or completing renovations) as a prerequisite for you exercising your option, their failure to meet these conditions could render the agreement void or allow you to terminate it. The agreement might include a "time is of the essence" clause, which makes meeting deadlines legally binding. If the property owner misses deadlines for required actions, you may have grounds to terminate the agreement. Carefully examine the terms, particularly sections related to contingencies, conditions, and remedies for non-compliance. Consult an attorney to assess your rights and obligations under the agreement and advise you on how to proceed. Feel free to reach out.
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ContractsCounsel User
Creative finance subject to contract drafting
Location: New Mexico
Turnaround: Over a week
Service: Prepare & File
Doc Type: Real Estate Option Agreement
Number of Bids: 3
Bid Range: $249 - $700
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