The Option/Purchase Deal

An option gives you the right, but not the obligation, to buy...
An option refers to the exclusive, irrevocable right to purchase a literary property (or rights to that property) at a set price within a specific period of time.

Option Fee

The consideration is the option fee:

The only money the owner is guaranteed to receive.
It is usually 10% of the purchase price.
(It is credited toward the purchase price).
If the purchaser does not exercise the option to buy, he keeps the option fee.

Option Period

The option period is the time during which the purchase may buy the property or forfeit his rights to do so (unless he has negotiated for the right to extend the option).

Applicability of Option Fee Against Purchase Price

Usually the option fee is an advance against the purchase price.
If one or more extended option periods are granted, usually those fees will not be applied to reduce the purchase price.

Option and Literary Purchase Agreement

Reversion Clause: If purchaser does not exercise the option, all rights immediately go back to the seller. (they revert back)

Option Activities

A clause that describes what the purchaser can do with the literary property during the option period.
Option activities: during the option period, producers can do all customary development activities (preparing treatments, screenplays, attaching talent, securing financing.)
However is principal photography starts, it will be deemed exercise of the option and the purchase price is immediately due.

Assignment Clause

The right of the purchaser to transfer the option or contract to another person or company.

The Purchase Agreement

Purchase Price/Consideration

Is negotiated simultaneously with the option terms (since to exercise the option the purchase price must be paid.)
The WGA does set minimum prices for acquiring original screenplays (50-145 thousand, depending on the budget).
Sometimes the purchase price is tied to the budget (a percentage of the final budget) - with a floor (minimum) and ceiling (maximum - in case that budget spirals out of control).

Contingent Compensation

The owner of the literary property usually request back end profit participation (5% of net proceed are customary).
The owner may request a bonus - payable if the film generates a particular level of theatrical box office gross receipts.

Credit

If no guild or not a screenplay (book, article, play, etc.) all aspects of credit will be specifically negotiated.
Same title as book: "Based upon the book by..."
Different title: "Based upon the book... by..."

Rights Granted

Must stipulate the rights that are being sold.
Producer may purchase all rights, or limited rights (just film and television).

Right Reserved Clause

Right Reserved Clause: list the derivate rights the owner is not selling (stage rights, sequel rights, prequels, etc.)

First Negotiation/Last Refusal

The producer will often demand the right of first negotiation with respect to any of the reserved rights.
The producer will have the right to negotiate to acquire the reserved rights when the owner is ready to sell.
In addition the producer will ask for a right of last refusal - the right to match any other offer that the owner may be willing to accept.