Sometimes a landlord and a tenant will enter into a lease with the grant of an option to purchase the leased premises during the lease or at the expiration of the lease term. Here are a few things to know about leases with options to purchase.
1. No Default: Typically a lease with an option to purchase does not permit a tenant to exercise its option to purchase if the tenant is in default. A landlord friendly lease with option to purchase – meaning a lease with purchase option drafted to give the landlord the most wiggle room – can state that the purchase option expires in the event of any default by the tenant not just a default at the time the tenant would like to exercise its purchase option.
2. Rent is Adequate Consideration: Generally, a purchase option is treated like any other offer to purchase with the caveat that it can be revoked at any time unless there is consideration for the option. That said, in California it is well settled law that when the lease grants a purchase option to the tenant the only consideration required for the purchase option is the tenant’s payment of rent. Spaulding v. Yovino-Young (1947) 30 Cal. 2d 138, 141.
3. Purchase Options Are Binding On Successors: Generally, the purchase option is a covenant that runs with the land. This means that the purchase option is binding on a successor landlord and a successor tenant. That said, parties can attempt to contract around a purchase option being binding on successors in interest.
4. Time Is Of The Essence. Typically, a lease with purchase option will contain a very specific time frame within with the tenant must exercise its purchase option or the purchase option will expire. This is up to the parties and the terms of the contract but typically there is an expiration period towards the end of the lease or a window of opportunity that does not commence until near the end of the lease.
The Los Angeles Real Estate Lawyers at Schorr Law have extensive experience litigating leases with options to purchase and drafting such agreements. Our experience helping clients resolve disputes allows us to have insight on how to win these disputes while simultaneously allowing us to anticipate problem areas when drafting leases with purchase options.
For more information please contact us at Schorr Law, APC, www.schorr-law.com, 310-954-1877, firstname.lastname@example.org.