Definition and Scope
The standard covers three types of stipulated options: 1. Cooling-off options (Khiyar al-Tarawwi) — parties get time to reconsider before commitment 2. Either-or options — buyer chooses between alternatives (e.g., color or size) 3. Options to revoke due to non-payment — seller can revoke if buyer doesn't pay within stipulated period Note: Unlike the Trust-Based Options standard–51 (automatic 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: • No time limit stated ("we reserve the option") • Unspecified limit ("refer to an expert" without saying when) • Indeterminate limit ("end when this index reaches X" — too vague) Note: There IS a minimum/maximum, but it depends on what's customary 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 (non-binding) • Salam contracts (require advance payment) • Currency exchange (require spot payment)
Consequences and Rights During Option Period
Rights of the option holder: • Can confirm the contract at any time (explicit or implicit) • Can test/examine the goods — testing DOESN'T 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 — option doesn't 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 SELLER holds option: NO ownership transfer occurs. Seller retains all property rights; buyer has no ownership of goods or price. • If BUYER ONLY holds option: Ownership DOES transfer to buyer. Buyer's conduct (testing, use) as owner serves as confirmation of the contract. • If item destroyed: Depends on possession and whose option it is. Buyer liable if he holds the option and it's destroyed. Seller liable if HE holds the option.
When Option Lapses
Automatic lapse: • When option period expires — contract becomes binding • When holder revokes the contract — contract terminates (other party must know of revocation) • When item destroyed before delivery — contract terminates • When holder confirms 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.