Manner of exercising option: Overview, definition, and example
What is the manner of exercising option?
The "manner of exercising option" refers to the specific procedure or method outlined in a contract for how an option (such as an option to buy, sell, or renew) is to be exercised by the party holding that option. An option in a contract gives a party the right, but not the obligation, to take a specific action, such as purchasing an asset, entering into a new agreement, or extending the term of the contract. The manner of exercising option defines the steps, requirements, and conditions under which this right can be activated.
For example, a tenant may have an option to renew their lease, and the manner of exercising that option might involve submitting written notice to the landlord within a specified period before the lease expires.
Why is the manner of exercising option important?
The manner of exercising option is important because it provides clarity and structure to the process of exercising a right or option under a contract. Without clear instructions on how an option should be exercised, there could be misunderstandings, disputes, or delays that may jeopardize the rights of the party exercising the option. Defining the manner ensures that both parties are aware of the process, timelines, and any formalities involved, which helps prevent legal challenges or complications.
For example, a purchase option for real estate might require the buyer to notify the seller in writing and pay a certain amount of money by a specified date. If these steps are not followed according to the manner specified in the contract, the option could become invalid.
Understanding the manner of exercising option through an example
Imagine a business owner who enters into a contract with a supplier that includes an option to renew the contract for another year. The manner of exercising the option might require the business owner to notify the supplier in writing at least 60 days before the contract's expiration. The notice should be sent by certified mail and include confirmation of the business owner's intent to exercise the renewal option. If the business owner follows these steps, they successfully exercise the option to renew the contract.
In another example, a stock option agreement gives an employee the right to purchase company stock at a fixed price. The manner of exercising the option might specify that the employee must submit a written notice to the company, pay the exercise price, and follow specific procedures for transferring the stock. If the employee fails to meet the requirements outlined in the manner of exercising the option, they may lose the right to buy the stock.
An example of a manner of exercising option clause
Here’s how a clause about the manner of exercising option might appear in a contract:
“The option to renew the lease may be exercised by the Tenant by delivering written notice to the Landlord at least [X] days before the expiration of the lease term. Such notice must be sent via certified mail to the address provided in this Agreement and must include confirmation of the Tenant’s intent to exercise the renewal option.”
Conclusion
The manner of exercising option is a crucial aspect of many contracts, as it provides a clear and structured approach for how a party can exercise their rights under an option clause. By specifying the process, timeline, and any necessary documentation or actions required, the manner of exercising option ensures that the option is exercised correctly and that both parties are aware of their responsibilities. Clear guidelines help avoid disputes and ensure that the rights associated with options are protected and upheld.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.