Legal Definitions - seller's option

A seller's option refers to a contractual provision that grants the seller, and only the seller, the right to choose whether or not to perform a specific action or complete a transaction, typically within a defined period or under certain conditions. The buyer is bound by the seller's decision if the seller chooses to exercise the option, but the seller is not obligated to do so.

This type of clause provides flexibility and control to the seller, allowing them to make a decision based on future circumstances without being forced into an action they might later regret.

• Example 1: Real Estate Development

  A large landowner sells a parcel of land to a property developer. The sales contract includes a clause stating that if the developer fails to secure zoning approval for a residential complex within three years, the original landowner (the seller) has the option to repurchase a specific undeveloped portion of the land at a pre-agreed price. The developer cannot force the landowner to repurchase, nor can they prevent the landowner from exercising this right if the condition is met and the landowner chooses to do so.

  This illustrates a seller's option because the original landowner has the exclusive right, but not the obligation, to buy back part of the property if a certain condition (failure to secure zoning) is met, giving them control over the land's future use.

• Example 2: Manufacturing and Supply

  An electronics manufacturer signs a contract to supply 5,000 custom components to a client by a specific date six months in the future. The contract includes a "seller's option" clause stating that the manufacturer may, at its sole discretion, deliver the components up to two months earlier than the scheduled date if production capacity allows. The client cannot demand early delivery, but must accept it if the manufacturer chooses to exercise this option.

  Here, the manufacturer (seller) has the choice to accelerate delivery, providing them with operational flexibility without obligating them to do so. The decision rests entirely with the seller.

• Example 3: Business Acquisition

  A small software company is acquired by a larger technology firm. As part of the acquisition agreement, the larger firm (the buyer of the software company's assets) includes a "seller's option" clause related to certain intellectual property. This clause states that the larger firm has the option to license back a specific, non-core patent to the original founders (the sellers) after five years, should the larger firm decide it no longer needs that patent for its core business. The founders cannot demand the license back, but must accept it if the larger firm exercises this option.

  In this scenario, the acquiring firm (the seller of the potential license) retains the right to divest a specific asset back to the original owners, giving them flexibility in managing their intellectual property portfolio without being forced to do so.