Daily Development for Wednesday, February 11, 2009
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Husch Blackwell Sanders
Kansas City, Missouri
RULE AGAINST PERPETUITIES; OPTIONS: A repurchase option in a contract to purchase real property that does not specify a closing date will not violate the rule against perpetuities since the law will presume a reasonable closing date.
Omar v. Rozen, 867 N.Y.S.2d 458 (A.D. 2 Dept. 2008).
Purchaser and Seller entered into a contract to purchase real property that contained an option to repurchase the property for a five-year time period but that did not specify a closing date. Purchaser later brought an action against Seller for breach of contract and for specific performance of the repurchase option, to which Seller responded with a claim that the repurchase option violated the rule against perpetuities ("RAP").
The Supreme Court, Appellate Division found that the five-year time period and the unspecified closing date did not cause the repurchase option in the contract to violate RAP. The court held that where a closing date is not specified, the law will presume a reasonable closing date and that failure to close by that date will constitute a breach of the implicit covenant of good faith and fair dealing.
The Seller also claimed that essential terms of the agreement were unspecified and left open for future negotiation in violation of the statute of frauds. The court held that unspecified terms such as the quality of title, closing date and risk of loss between contract and closing would be presumed by the law, and that the contract did specifically identify the parties, the property, and provide a reasonably certain method of determining a purchase price and the terms of financing. Accordingly, the court dismissed the Seller's affirmative defenses of a violation of RAP and of the statute of frauds.
Comment: The editor agrees, and there a number of other cases so holding. The optionee’s rights truly arose upon exercise of the option, and that had to happen within five years. Although it certainly is best for the parties to work out the various other details of an option exercise at the time of creation of the option, this is not necessarily the market practice, and the courts will fill in all but the most critical details. We must be clear as to the parties, the land, the price, and the time of exercise. We should be clear as to much more. But the courts will provide . . .
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