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
dirt@umkc.edu
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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