An option to purchase is an irrevocable offer to sell upon specified terms during a specified period. A landlord and tenant may enter into an option to purchase within the terms of a lease.[1]
Options to purchase should, and in many jurisdictions must, satisfy the statute of frauds.
Courts in various jurisdictions are split on whether an option to purchase is extended by renewal of the lease or holding over with landlord’s consent. The prevailing view is that the option is not extended[2], but there is contrary authority.[3]
While most courts hold that tenant loss of leasehold and possession by abandonment or default negates an option to purchase, a tenant default that does not result in loss of the leasehold usually has not been held to terminate an option to purchase.
After exercising the option the erstwhile tenant has the rights of a purchaser, is longer liable for rent, and cannot be evicted via the summary unlawful detainer process.[4] However, in a few jurisdictions statutes give the seller summary process to evict a purchaser in default.[5]
The tenant may seek specific performance of an option or injunctive relief to prevent transfer of title.[6]
A good option to purchase will specify at a minimum
- whether the option continues if the lease is renewed or extended by month-to-month tenancy
- whether the option is assignable
- whether the tenant’s breach extinguishes the option to purchase
- the time and manner of exercising the option
The short summary is no substitute for legal advice. The law of landlord and tenant varies from jurisdiction to jurisdiction and changes. For advice about your circumstances consult an attorney.
[1] See generally, American Law of Landlord and Tenant, Robert S. Schoschinski, The Lawyers Co-operation Publishing Company (1980) §§9:11-9:13; Friedman on Leases, Fifth Edition, Vol.1, Milton R. Friedman, Patrick A. Randolph, Jr., Chapter 15.
[2] See Rubber, Inc. v. Jenkins, 570 P2d 1317 (1977); Gower-Goheen Realty, Inc. v. Braun, 215 S.2d 499 (1968); Hannah v. Hannah, 21NC App. 265, 204 SE2d 212 (1974); Synergy Gas Corp. v. M.H. Orsburn & Son, Inc., 15 Ark.App. 128, 689 S.W.2d 594 (1985); Bateman v. 317 Rehoboth Ave., LLC, 878 A.2d 1176 (2005).
[3] Masterson v. George, No. 2006-CA-001265-MR (Ky.App. 08/10/2007); Emmett S. Hickman, Inc. v. American Realty Enterprises, Inc., 277 A.2d 688 (1971); Superior Portland Cement, Inc. v. Pacific Coast Cement Co., 33 Wn.2d 169, 205 P.2d 597 (1949)( If a new lease refers to and extends the terms of the original lease, the option to purchase is also extended.).
[4] See Twelfth Ave. Investments, Inc. v. Smith, 979 S.2d 1216 (Fla. Dist. Ct. App.4th Dist. 2008); Pensacola Wine and Spirits Distiller, Inc. v. Gator Distributors, Inc., 448 S.2d 34 (Fla.Dist.Ct.App. 1st Dist. 1984); Barkley-Cupit Enterprises, Inc. v. Equitable Life Assur. Soc. Of U.S, 157 Ga. App. 138, 276 S.E.2d 650 (1981); White v. Coates 17 Wn.2d 686, 137 P2d 113 (1943); Bar K Land Co. v. Webb, 72 Wn. App. 380, 864 P.2d 435 (1993).
[5] See Ill. Ann. Stat. Ch.57, §2; Mich. Comp. Laws §600.5634(1); N.Y. Real Prop. Acts. Law § 713(g).
[6] Schosinski at §9:13.