Option Agreement – Introduction
A scriptwriter contacted us, asking what legal issues to be aware of when selling her completed scripts to film producers.
Typically, a scriptwriter (let’s call her the “creator”) would enter into an option agreement with a producer interested in producing the film—unless, perhaps, the producer has the funds to produce it herself.
Under an option agreement, the producer does not immediately purchase the rights necessary to produce the production (which perhaps might be a feature film, a series, etc.); rather, the creator provides the producer an amount of time (the “option period”) during which the producer has the exclusive right to purchase those rights at a pre-determined purchase price. The option period is typically 1-2 years and provides the producer with time to seek investors and financiers interested in contributing to the development and production of the project. For the purposes of this blog, we will refer to the project as a film.
For a first-time scriptwriter, the fee to enter into an option agreement (the “option fee”) is typically very low, perhaps even $1. However, this might be worth it to have the producer try to get the project financed. The lower the option fee the greater latitude to negotiate for a shorter option period and/or higher fees to extend the option period.
Once the producer is ready to purchase the rights to make the film, she exercises her option under the agreement, and, once she does, the rights are conveyed to the producer.
The “purchase price” may be paid at the time the option is exercised, at a future date (such as when the principal photography commences), or perhaps partly when the option is exercised and partly when principal photography commences.
This purchase price is likely a set dollar amount, or a formula relating to a percentage of the budget. If it is a percentage of the budget, the producer would likely require certain financial restrictions on the purchase price, such as a maximum amount.
If the option period ends before the producer exercises the option, the producer no longer has the right to purchase the script.
This option/purchase structure is used because, while the producer may be interested in the script, she wants to ensure she can finance the film before agreeing to pay the creator the purchase price. In some cases, the option fee is set up as an advance against the purchase price.
Option Agreement – Other Key Components
In addition to the option fee and purchase price, an option agreement may also include some of the following key components:
- One or more option period extensions, which allow the producer to extend the option period in exchange for a fee;
- Clear guidelines regarding what the producer must do in order to exercise the option (e.g. provide written notice and to whom, by when, and what funds need to be paid in order to exercise the option, if any); and
- The other rights and compensation to be provided to the creator if the producer produces the film (e.g., specific credits in the film, sales bonuses, box office bonuses, profit participation, rights to sequels, television adaptations or other derivative works). For a project that is based on the script, for example if the script is a pilot script for a TV series, the writer may wish to clarify that she is entitled to write a certain number of episodes per season of the series.
It is also important for the creator to ensure that the option agreement clarifies the creator’s rights should the producer exercise the option, pay the purchase price, but not make the film for a set number of months or years (referred to as a reversion). In that case the creator would receive the script back to try her luck with someone else.
Option Agreement – In Conclusion
Before negotiating an option agreement, the first step is to find the right partner!
If you receive an option agreement, or want help offering one to someone else, please let us know…we’re happy to help!
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Originally published November 29, 2014. Updated to January 15, 2021.
Edwards Creative Law is a boutique law firm provides legal services to Music, Film, Animation, TV, Digital Media, Game, Software and Publishing industry clients. For more information and blogs, please visit https://edwardslaw.ca
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* This blog is for general informational purposes only and is not to be construed as legal advice. Please contact Edwards Creative Law or another lawyer, if you wish to apply these concepts to your specific circumstances.