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 . . .
       
Items reported here and in the ABA publications
are for general information purposes only and
should not be relied upon in the course of
representation or in the forming of decisions in
legal matters.  The same is true of all
commentary provided by contributors to the DIRT
list.  Accuracy of data and opinions expressed
are the sole responsibility of the DIRT editor
and are in no sense the publication of the ABA.

Parties posting messages to DIRT are posting to a
source that is readily accessible by members of
the general public, and should take that fact
into account in evaluating confidentiality
issues.

ABOUT DIRT:

DIRT is an internet discussion group for serious
real estate professionals. Message volume varies,
but commonly runs 5 to 15 messages per work day.

Daily Developments are posted every work day.  To
subscribe, send the message

subscribe Dirt [your name]

to

listserv@listserv.umkc.edu

To cancel your subscription, send the message
signoff DIRT to the address:

listserv@listserv.umkc.edu

for information on other commands, send the message
Help to the listserv address.

DIRT has an alternate, more extensive coverage that includes not only
commercial and general real estate matters but also focuses specifically upon
residential real estate matters.  Because real estate brokers generally find
this service more valuable, it is named “BrokerDIRT.”  But residential
specialist attorneys, title insurers, lenders and others interested in the
residential market will want to subscribe to this alternative list.  If you
subscribe to BrokerDIRT, it is not necessary also to subscribe to DIRT, as
BrokerDIRT carries all DIRT traffic in addition to the residential discussions.

To subscribe to BrokerDIRT, send the message

subscribe BrokerDIRT [your name]

to

listserv@listserv.umkc.edu

To cancel your subscription to BrokerDIRT, send the message
signoff BrokerDIRT to the address:

listserv@listserv.umkc.edu

DIRT is a service of the American Bar Association
Section on Real Property, Probate & Trust Law and
the University of Missouri, Kansas City, School
of Law.  Daily Developments are copyrighted by
Patrick A. Randolph, Jr., Professor of Law, UMKC
School of Law, but Professor Randolph grants
permission for copying or distribution of Daily
Developments for educational purposes, including
professional continuing education, provided that
no charge is imposed for such distribution and
that appropriate credit is given to Professor
Randolph, any substitute reporters, DIRT, and its sponsors.

DIRT has a WebPage at:
https://test.exchange.umkc.edu/exchweb/bin/redir.asp?URL=http://cctr.umkc.edu/dept/dirt/