Definition and Scope
The standard covers three types of stipulated options:
- Cooling-off options (Khiyar al-Tarawwi): parties get time to reconsider before commitment.
- Either-or options: the buyer chooses between alternatives, such as color or size.
- Options to revoke due to non-payment: the seller can revoke if the buyer does not pay within the stipulated period.
Unlike the Trust-Based Options standard-51 options that arise automatically upon breach, the Cooling-Off Options standard options are agreed to in advance.
Cooling-Off Options (Khiyar al-Tarawwi)
Definition: A right given to one or both parties (or a third party) to continue OR revoke the contract within a stipulated period, allowing time for reconsideration.
Five Conditions of Validity
Condition 1: The option must be STIPULATED in the contract, OR implied by custom, OR added later by mutual agreement. Can't arise by accident.
Condition 2: The option period must have a specific time limit. Examples of invalid stipulations include:
- No time limit stated, such as "we reserve the option."
- An unspecified limit, such as "refer to an expert" without saying when.
- An indeterminate limit, such as "end when this index reaches X."
There is a minimum or maximum only to the extent custom establishes one for that product.
Condition 3: The cooling-off period must BEGIN AT the contract time — not later.
Condition 4: If the contract has multiple items, the option must SPECIFY which items it covers. If fungible (wheat, rice), specify the percentage.
Condition 5: The goods must remain in their ORIGINAL CONDITION during the option period.
Scope and Application
Applies to: Binding contracts like sales, leases, debt transfers, guarantees, wealth divisions, and Waqf.
Does NOT apply to:
- Unpaid agency, because it is non-binding.
- Salam contracts, because they require advance payment.
- Currency exchange, because it requires spot payment.
Consequences and Rights During Option Period
Rights of the option holder:
- Can confirm the contract at any time, explicitly or implicitly.
- Can test or examine the goods. Testing does not cancel the option unless the buyer conducts repetitive tests without need or acts as owner in breach of custom.
- Can offer goods for sale to third parties. The option does not lapse until that third-party sale completes.
Payment and delivery during option: Parties are NOT required to make payment or delivery unless they agree. Voluntary payment/delivery does NOT cancel the option — UNLESS their conduct indicates intent to transfer ownership. If one party pays/delivers, the other may hold back, and the first party gets refund.
Ownership During Option Period
Critical rule: Ownership status depends on who holds the option:
- If both parties or the seller holds the option: no ownership transfer occurs. The seller retains property rights; the buyer has no ownership of the goods or price.
- If only the buyer holds the option: ownership transfers to the buyer. The buyer's conduct as owner, such as testing or use beyond custom, can confirm the contract.
- If the item is destroyed: liability depends on possession and whose option it is. The buyer is liable if he holds the option and causes the destruction; the seller bears force-majeure loss if the seller retained ownership.
When Option Lapses
Automatic lapse:
- When the option period expires, the contract becomes binding.
- When the holder revokes the contract and the other party knows of the revocation, the contract terminates.
- When the item is destroyed before delivery, the contract terminates.
- When the holder confirms the contract, the contract becomes binding.
Either-Or Options (Khiyar al-Ta'yin)
Definition: An option allowing the buyer to choose between two alternatives (e.g., "You may have this car in RED or BLUE" or "You may pay $10,000 cash or $12,000 in installments"). The buyer must choose within a stipulated period.
Either-or options are subject to the SAME five conditions as cooling-off options: explicit stipulation, fixed time limit, beginning at contract, specification of alternatives, and maintenance of goods in original condition.
Option to Revoke Due to Non-Payment
Definition: A stipulated right allowing the seller to revoke the contract if the buyer fails to pay within a specified period after the goods are delivered or made available.