The lease expired on September 8. On that date, Tenant gave Landlord a check for another month's rent and a note (dated three days before) suggesting they get together "to discuss closing." After they met and set a closing date (September 21), Tenant failed to return phone calls or keep appointments. Ultimately, Landlord sued to evict Tenant and for breach of contract. Tenant, incidentally, was a lawyer.
Tenant first argued that a written exercise of the option was required. The court found that the method of exercise was sufficient and that it was not a violation of the Statute of Frauds. Under Colorado's Statute of Frauds, a writing is required to be signed by the party by whom the sale is to be made and not by the party to be charged as it is in some states. The court affirmed the damage award in an amount equal to the amount by which the contract price exceeded the market value of the property at the time of the breach and it also awarded Landlord interest on mortgages against the house as an element of special damages.
Tenant next argued that the method of exercise was inadequate, because the option language required that the tenant accept by tendering the price. The court noted that it would be virtually impossible to exercise the option "at closing" as the words of the contract required and also to exercise by tender. It viewed the option as contemplating that the money would be paid at a closing date established by the parties at the time of the exercise. (Although, logically, this would appear to mean that the tenant could exercise on the last day of the option period and close after the termination, the court does not say that expressly - the agreed upon closing date was within the extended term of the lease.)
Tenant then argued that merely offering to "discuss closing" was not sufficient to be an exercise of the option. Tenant stated that he was only offering to discuss the terms of a purchase. The court noted that the jury was entitled to conclude that Tenant, a lawyer, would have intended that the use of the word "closing" meant exercise of the option.
Further, the court concluded that the fact that Tenant tendered a month's rent along with his note did not belie the conclusion that Tenant intended to exercise the option, since the parties should have contemplated that at least some of the month's term would run before closing would occur.
Comment: A "slam dunk" for the landlord against the recalcitrant lawyer tenant/ optionee. One wonders whether the result might even be the same in a state using the more ordinary phrasing of the Statute of Frauds, since the tenant had signed the original contract, and if the written lease/option clause provided that tenant's obligation to conclude the purchase was contingent upon verbal notification, the lease itself might be a binding written contract to purchase.
Probably the most interesting aspect of the case to the editor is the question - unanswered - as to whether the option ought to be construed to permit the optionee a reasonable time to close after the expiration of the option period - here defined as the lease period. If, for instance, the tenant had indicated on October 8 that it intended to close on the property on October 21, but the parties (due to the will of either of landlord or tenant) did not continue the lease in effect for the month of October, would the court have found the option exercise binding on the landlord?
Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last five years, these Reports annually have been collated, updated, indexed and bound into the Annual Survey of Developments in Real Estate Law, volumes 1-5, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Laprica Mims at the ABA. (312) 988 6233.
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. Accuracy of data and opinions expressed are the sole responsibility of the DIRT editor and are in no sense the publication of the ABA.