Question and Answer Regarding Lease Option Payment
Question: I drafted a lease, option and purchase agreement. Is the option payment non-refundable or should the option money stay in escrow pending removal of the contingencies by the buyer?
Answer: You are confusing an option payment with a deposit subject to a liquidated damages provision. Under an option agreement, the buyer is paying to take the property off the market for a period of time. The option payment gets paid irrespective of whether the buyer purchases the property. In some instances, the option payment is applicable towards the purchase price of the property. In other instances, it is not; it depends on the agreement negotiated by the parties. On the other hand, a deposit subject to a liquidated damages provision does not get released and does not become non-refundable, unless separate consideration is provided and specific drafting requirements are met. It is recommended that attorneys draft agreements for non-refundable deposits.
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