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LSDefine
Simple English definitions for legal terms
Option Contract
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A quick definition of Option Contract:
An option contract is a special type of promise. When someone makes an offer and you want to keep that offer available for a certain amount of time, you can pay for an option contract. This means that the person who made the offer cannot take it back because you paid for the right to keep the offer open. It's like buying a ticket to a show - once you have the ticket, the theater can't sell it to someone else because you already paid for it.
A more thorough explanation:
An option contract is a type of agreement where the offeror promises to keep an offer open for a certain period of time in exchange for payment. Once the payment is made, the offeror cannot revoke the offer.
For example, let's say John wants to buy a house from Jane. Jane offers to sell the house to John for $200,000, but John is not sure if he wants to buy it yet. Jane offers John an option contract, where John pays $5,000 to keep the offer open for 30 days. During this time, Jane cannot sell the house to anyone else. If John decides to buy the house within the 30 days, he can do so for $200,000. If he decides not to buy the house, Jane keeps the $5,000 as compensation for keeping the offer open.
Another example of an option contract is when a company offers an employee the option to buy company stock at a certain price within a certain time frame. The employee pays for the option, and if the stock price goes up, the employee can buy the stock at the lower price and make a profit.
Option contracts are commonly used in real estate, finance, and employment agreements. They provide a way for parties to negotiate without the risk of the offer being revoked.