Option agreement

How BC law treats it

BC has no general contract statute. Option agreements are governed by the common law of contract. An option is a binding promise to keep an offer open, so the holder must give consideration, usually an option fee, or the agreement must be under seal. The holder can then exercise the option by giving notice exactly as the agreement requires, which creates a binding contract of purchase and sale on the agreed terms. An option over land is an interest in land. A contract respecting land must be evidenced in writing signed by the party to be charged, or meet the part performance exception, under the Law and Equity Act, RSBC 1996, c 253, s. 59. To protect it against later buyers and lenders, the holder should register the option on title in the Land Title Office under the Land Title Act, RSBC 1996, c 250. Long-dated options can also raise issues under the Perpetuity Act, RSBC 1996, c 358. In corporate work, options appear as call options (the right to buy shares) and put options (the right to require someone to buy them) in shareholder agreements and share purchase agreements, and as employee stock options under an equity incentive plan. Issuing options or shares may require a prospectus exemption under the Securities Act, RSBC 1996, c 418 and its instruments. An option differs from a right of first refusal. An option lets the holder buy whenever it chooses within the option period. A right of first refusal only lets the holder match a third party offer if the owner decides to sell.

What it means for your business

Options let developers tie up land while they obtain rezoning or financing, let tenants secure the right to buy their premises, and let shareholders plan buyouts. The holder pays a small fee for flexibility, while the owner gives up the freedom to sell elsewhere. Because options are enforced strictly, both sides need precise terms on price, exercise notice, deadlines and closing mechanics. An unregistered land option can be defeated by a sale to someone else. Example: A Langley developer pays a farmer $50,000 for an 18-month option to buy his land at a fixed price while it seeks rezoning. The developer registers the option on title so the farmer cannot sell to anyone else free of it.

Risks and common mistakes

Failing to register a land option on title, leaving it exposed to a later purchaser. Leaving the price or exercise mechanics vague, so the option is void for uncertainty. Exercising the option late or by the wrong notice method. Confusing an option with a right of first refusal when drafting. Granting share options without considering securities law exemptions.