By Christopher Schiller
Fantastic news! Someone is interested in your script! And they’re offering you MONEY!
In your excitement you’d better understand what they mean by the terminology they use and just what it is they are offering you money for. You could be in for a rude awakening or you can miss out on opportunities by relying on faulty assumptions. Knowing what the words mean puts you in the driver’s seat.
You would be amazed at how often I’ve run into seasoned veterans in the industry that muddle the terms they use when talking about deals. It is somewhat forgivable when the terms are used in casual conversation talking about the general day’s news, but, quite another when that term is in black and white on a contract. Let’s look at two similar but vastly different terms that get confused all the time: OPTIONS and SALES.
“Aren’t an Option and a Sale basically the same thing? You get money for either one, right?”
Options are highly distinct from Sales and keeping that in mind will head off a lot of problems.
An OPTION is a contractual agreement by one party to self-adhere to a restraint of trade of some property or aspect of property that the party otherwise is legally free to market, in exchange for something of value.
When you grant an option to someone you are agreeing that you will not seek to sell your property to anyone else for the time agreed in the option but you haven’t actually sold them any part of the property yet.
Anyone who has gone through the process of buying a house is familiar with this process. Money put in escrow or as a downpayment secures the property for a limited time so that it cannot be sold or marketed to another party while you go and arrange the rest of the financing. You risk a portion of the sale price while you finalize the loan arrangements and all the other paperwork and finagling that makes buying a house take so long. If, for some reason you run into a snag that derails the process the money you put down to keep the property off the market is forfeit and the house is free to be sold to someone else.
It is exactly the same in the film world. An option is just an agreement in exchange for something of value to not sell to someone else for a limited period. That is ALL it is. An option is NOT a sale. There are no property rights transferred with an option. If a producer owns an option, they really only own a stopped clock and a momentary place at the front of the line. That advantage has a limited value for the limited time of the agreed terms of the option agreement. That value can be used as leverage to gather the resources to move the process towards a sale but has no guarantee of success.
All Out of Options
An Option can be ended two ways. It can EXPIRE, or it can be EXECUTED.
Every Option will have specifically defined terms that state the length of time it lasts, any extensions that might be available and their costs and consequences and what has to happen in order to trigger the next stage. If the party granted the option cannot fulfill those terms within the time limit, the option “expires” and the restrictions imposed on the property owner are released.
If, however, the party that holds the option can fulfill the terms of the agreement successfully then they can “exercise” the option by the terms established in the option agreement and trigger the initiation of a separate sale agreement. Here’s where a lot of people get confused. An exercised option is NOT a sale. It is a step necessary to initiate a pre-negotiated sales agreement process. Even a properly exercised option agreement will not guarantee a sale. The terms of the separate sales agreement must still be met. An exercised option only guarantees a seat at the table with the pre-arranged sale terms already set. Usually, this is a formality, but, with a poorly formed purchase agreement or one without all the details worked out ahead of time, this can be a nightmare.
“So then what is a SALE?”
A SALE, or more accurately a PURCHASE AGREEMENT, is a contractual exchange of rights and/or property for something of value according to agreed terms.
The Sale or Purchase Agreement is the true exchange of real things. It is the lifeblood of all transactions in the industry. This agreement contains the foundational asset, the first tangible step to a film production. It transfers the rights necessary to actually make the film. The producer who successfully goes from having an Option “to” a property and moves to having “purchased” the property is no longer living in a land of wishes. They’ve moved to a land of possibilities. (Long shots, more than likely, but, still possible long shots.)
“So Why Do We Need Options?”
In point of fact, if there were no financial obstacles, there would be no reason to use Options. Everything would be directly handled by purchase agreements in the first place. Reality dictates that sometimes your dreams outstretch your current reach and you need some time and opportunity to gather the proper resources. But a producer cannot go around raising money and getting cast to commit to a project without an assurance that someone else won’t swoop in and buy the rights out from under that producer. A negotiated Option agreement stands as that assurance.
If a producer wants to make a movie from your script but doesn’t have enough money to buy it right now you have every reason to be flattered. And if the producer appears sincere, you might even be inclined to grant them an option. But be careful. A producer should be motivated by having something significant at stake. If they aren’t risking enough they won’t be trying hard enough to succeed. And if they aren’t trying enough to succeed then you have removed your property from the marketplace without any benefit in return. Remember, everything is negotiable. Make sure the terms of an Option don’t maneuver you into a disagreeable position.
Things to Note, Watch Out For or Avoid
There are several elements above that are highlighted with italics. I did that because these are very important required elements that may seem trivial, but, are in actuality highly important to remember that Options are for limited times and exchanged for something of real value. Those two elements should always be in proportion to what you are giving up for the agreement to be fair.
I have no idea where this originated but the term “non-exclusive” option makes no sense. For an Option to have any value it must be exclusive. If a producer asks for something like this as a way of lowering the option price, be leery.
It is an unfortunate reality that you might be offered what are generally referred to as zero-dollar, one-dollar or very low cost options. Always ask yourself what are they risking? How hard are they going to work to keep from losing that? There’s another potential problem with these in the fact that if there is no real value exchanged, it could be argued there is no real contract and things can get really hairy.
At times you are offered something other than money for the option. If promises are used instead, they must be promises that can be kept at the time of entering into the contract. And they should make sense. If a promise seems too good to be true, it isn’t.
Term length of an option is negotiable. A longer term is valuable to the buyer. They’ll have more time to negotiate, find financing, build a package. The time should be commiserate with the value paid for the option. If they can’t afford to pay sufficiently for the exclusive right, the term should be very short. A short term keeps a buyer with lesser means motivated to make it work.
Many Option agreements include opportunities for term extensions. These should be costly to the optioner to execute. It is not unusual to have the payments escalate and not go towards final sale price. Extensions should not be a no brainer, automatic choice, but, available if necessary.
Remember all terms are negotiable. Don’t give something valuable to another without an equally valuable benefit in return.
Finally, It keeps things clear to have a separate option agreement and sale agreement. Two separate signatures reminds people that these are two separate things.
- More Legally Speaking, It Depends articles by Christopher Schiller
- Indievelopment: Show Me the Money! – Getting Paid in Indie
- Story Talk: Should I Take a $1 Option on My Screenplay
Tools to Help:
- Creating Original Series Ideas and Writing Spec Pilots with Erik Bork, writer/producer of HBO’s Band of Brothers
- Shaping True Story into Screenplay
- The Writer’s Toolbox: Creative Games and Exercises for Inspiring the Write “Side of Your Brain”