Teams have until the October 31 preceding the player's second regular season to exercise their option for the player's third season. Likewise, they have until the October 31 preceding the player's third regular season to exercise their option for the player's fourth season (see question number
57 for more information on options). If the team invokes both options (keeping the player for all four seasons) and submits a qualifying offer after the fourth season, then the player becomes a restricted free agent (see question number
42 for more information on restricted free agency).
If the team declines either option, then the player enters free agency as an unrestricted free agent.
However, if the team declines either option and the player becomes a free agent, the team cannot re-sign him to a salary greater than he would have received had the team exercised its option. In other words, teams can't decline an option year in order to get around the rookie salary scale and give the player more money. This applies to all types of signings, including the Bird exception, the Mid-Level exception, and cap room.