If there is a redemption period, you might find that the state or local law will permit other creditors to exercise the rights of redemption.In some states (such as my state of PA), acquiring a property via a tax sale purchase will typically be a "subject to" type of transaction: you take over the property "subject to" all existing liens remaining in place (except that you have paid off the taxes with your purchase money) - they aren't wiped out without a special judicial action.Other than that, Bill is correct - you did not agree to anything via contract, so you are not obligated.

You could simply call it a 3/2 and say the extra room is an office or exercise room if that is what rents better. 

It is monetary compensation to the seller in exchange for a due diligence period, the said compensation is non-refundable if the option is exercised and if not exercised it is credited to the price of the property at the closing.

But, it was great exercise (just walking) and I learned about

Also, the municipality cannot penalize the tenant or the property owner for the tenant exercising their right to refuse, i.e. fine, fee or condemn the property simply for the failure of the tenant to give permission. 

Besides, in my market, law schools have students constantly making calls to landlords trying to get them to violate fair housing and they press charges as an exercise.

Ours does, except that a few years ago our restrictions were amended so that part of the garage could be used for exercise equipment.

Do I make it conditional on my first exercising my rights under Option #1?

This has been an ongoing exercise that occupies quite a bit of our time.As far as I know, we are also the only company that sells real estate investor websites and allows you to install them on your own host (server).

I will leave connecting the dots as an exercise to the reader.....