Purchase Rights And Poison Pills

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There is so much to say about purchase rights: straightforward ones, rights of first refusal, rights of first offer, rights of last offer, and rights of first notice). There is so little time to do so. [For those with time to spare, click HERE for a primer.]

Very often, a contractarian approach is taken by courts when exploring contract terms. After all, absent overreaching in one form or another by one party, those participating in commercial transactions are believed to be grown-ups. That is, they are expected to understand the impact of their agreements and to abide by the consequences. However, there are exceptions. Today, as we describe a New York court’s protecting a party’s right of first refusal to purchase a property, we get yet another opportunity to drag out a well-worn Ruminations’ topic: The Implied Covenant of Good Faith and Fair Dealing. [Read more…]

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Who Knew Purchase Options Could Be So Complicated?

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We don’t know if there are more ways to write a purchase option in a lease “wrong” than right,” but we do know opportunities abound. Here are a couple of examples. The first is based on a statement of California law within a court opinion from March of 2018. [See it by clicking: HERE.] Basically, that court lifted text from earlier cases, each of which is pretty stark. Here they are:

Where an option to purchase exists within a lease agreement, the exercise of the option to purchase causes the lease and its incorporated option agreement to cease to exist, and, instead, “a binding contract o[f] purchase and sale c[omes] into existence between the parties.”

[W]hen defendant exercised the option granted her to purchase the property by making the first payment of $500 thereunder, the lease and option agreement no longer existed and a binding contract of purchase and sale came into existence between the parties.

Further, a consequence of the termination of the lease agreement is that the former lessee’s obligation to pay rent under the lease also terminates, unless there is an express stipulation that requires continued rent payments after the exercise of the purchase option.

Where the relation of landlord and tenant exists under the terms of a written lease, containing an option to purchase which the lessee exercises, [and it is exercised,] he is no longer in possession as a tenant, but his possession is that of a vendee.

[Read more…]

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What Is The Lifespan Of A Lease After The Stated Term Ends?

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What are the rules between a tenant and its landlord after a lease expires? In today’s blog posting, we aren’t exactly thinking about a “holdover” tenancy. In the context of this question, we’ll leave that for another day. [For those who haven’t yet read what we wrote in our November 2012 posting: “Why So Much Confusion About Holdover Tenants?,” it can be seen by clicking here: HERE. For other Ruminations about holdover tenancies, you can click: HERE or HERE.]

It is common to see a lease recite something like the following: “If the Tenant remains in possession after this lease ends, the continuing tenancy will be from month to month.” At least, that’s how the lease we learned about in a California appellate decision (of January 10, 2019) just read by us. [It, Smyth v. Berman, can be seen by clicking: HERE.]  On its face, it would seem that those quoted words are equivalent to a lease extension just as would be the case if the tenant had an extension (or, poorly named, renewal) option. Well, is it the same? [Read more…]

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Isn’t It Simple To Send A Notice? Apparently Not

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In the six years of our Ruminating in this forum, we’ve written a lot about notices, renewal options, and waivers. We just came across an otherwise insignificant case (other than to the parties themselves) illustrating some of the points we’ve tried to make over the course of this blog’s life.

Our story involves an unremarkable retail lease and a single, also unremarkable, lease amendment extending the original lease term for 20 years and granting the tenant a 5- year extension option thereafter. To exercise the extension option, the tenant was required to give 180 days’ prior irrevocable, written notice. The lease amendment did not specify what the notice had to say and did not give any “rules” for how a written notice needed to be given. Beyond those two substantive items, the lease amendment said that all other terms and conditions of the lease remained as originally set forth in the lease. [Read more…]

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Rights Of First Refusal Transmogrify Into Purchase Options

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Rights of first refusal create difficult situations. For that reason, knowing landlords resist granting them. Unknowing ones don’t know not to resist. Then again, “resist” doesn’t mean never. So, like it or not, there are plenty of leases with such a provision.

We’ve written about rights of first refusal and alternatives to such provisions. If you’d like to get on the same page as those who have seen what we’ve written in prior blog postings, click: HERE and HERE.

A few weeks ago, we came across a case that gives a pretty good explanation about what a first of right refusal is and what it becomes. But, we’re getting ahead of ourselves. First, here’s the story.

A landlord owned two adjacent parcels. One was tenanted by a quick service restaurant, the other by a discount store. The quick service restaurant had the earlier lease and that lease gave it a right of first refusal to purchase both parcels. The later (in time) discount store lease had a purchase option (not a right of refusal). The option was exercisable during the last two years of the lease term, but was expressly subject to the right of first refusal in the quick service restaurant’s lease. Got it so far? [Read more…]

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HUGE SALE: $20,000,000 Property For Only $300,000. Read All About It

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What does an owner-landlord do when a tenant has a $300,000 purchase option for a property worth more than 20 million dollars? That question could be the end of today’s posting if we treated that as a rhetorical question. Other bloggers might do that, but not the erstwhile Ruminator.

When the spread is over 20 million dollars, legal costs mean little. For students of the “expected value” approach, the breakeven point for a 1% chance of picking up those millions is $200,000. If you think there is a 5% chance, then spending a million dollars is fair value for such a lottery ticket. Hence, a case decided about a week ago by the United States Court of Appeals for the Ninth Circuit makes sense to us economically, but doesn’t help us with our abiding belief that a deal should be a deal. [Read more…]

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Option Rights, Reasonable Expectations, And Traps For The Unwary

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A few weeks ago, we included the text of a common lease extension option clause in our blog posting. We didn’t endorse it; we only used it as an illustration. An astute reader pointed out a weakness (from the landlord’s perspective) of what, at first blush, looks like a landlord-friendly aspect of the cited provision. Today, Ruminations is going to disseminate that thought and explore some other related aspects. The general theme will be what happens when it is a condition of the tenant’s lease extension option that it not be in default. So, we’ll start by republishing the lease provision that triggered today’s thoughts: [Read more…]

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How Big A Default Was It?

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It is pretty common for a lease or other agreement to grant a party (usually the tenant) a particular right or option and then make it conditional on the “entitled” party not being in default or never having been in default. We are “talking” about such provisions that look like the following sample, but we aren’t endorsing its particular formulation. That would be a whole ‘nutter discussion.

Provided that on both the day that Tenant gives its Renewal Notice and on what would have been the Expiration Date had the Lease Term not been extended by the giving of the Renewal Notice: (a) this Lease had not been previously terminated; and (b) Tenant shall not be in default beyond applicable notice and grace periods, Tenant shall have the option to …

In Merry Ole England, the King had a court system that heard and resolved all disputes. Well, not really all disputes, only those that fit into a limited number of “off-the-shelf” cognizable claims (lawyers, think: causes of action). These “pre-packaged” claims, called “writs,” were “designed to enable the English law courts to rapidly process lawsuits.” The writs were highly technical, and even though new ones were regularly issued to create new rights, the system just couldn’t keep up. If a claim couldn’t be fit into an existing “writ,” the aggrieved person was out of luck – “no writ, no remedy.” The law was the law and too bad! [Read more…]

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