Real Estate Options To Purchase
By Laine Wagenseller
The author has permitted the reprinting and redistribution of this
article.
What is an Option
An option is a contract by which the owner of property invests another
with the exclusive right to purchase said property at a stipulated sum
within a limited or reasonable time in the future. Nattress &
Associates v. Cidco (1986) 184 Cal.App.3d 55, 66. Donald Trump used an
option to purchase the Hotel Commodore at Grand Central Terminal, his
ground breaking first deal at 27 years old. More commonly, options are
used in leases in which the landlord gives the tenant an option to buy
the property.
For example, the AIR Option to Purchase form provides that the lessee
must provide written notice within a certain time period (i.e., April
1, 2004 to April 30, 2006), with the option expiring at the end of the
option period. The form also sets forth the price, the escrow agent, a
time period in which to close the sale and other instructions. After
exercising an option, the parties should then enter into a Purchase
& Sale Agreement, which addresses in more detail all of the
minutiae of the sale transaction.
An Option is Irrevocable
An option supported by consideration (even $1) is an irrevocable offer,
open for a prescribed period. The acceptance must be in accordance with
the terms of the option agreement and must be in accordance with the
terms of the option agreement and must be free of conditions which the
optionor is not bound to perform. Riverside Fence Co. v. Novak (1969)
273 Cal.App.2d 656, 660. The exercise of an option is merely the
communicated election of the optionee to accept the option. Id.at 661.
It is important to recognize that, in terms of the formation of a
contract, an option is a contract. Therefore, the offer (option) is
truly irrevocable and merely awaits acceptance.
A Qualified or Conditional Acceptance
What is the effect of an acceptance which adds additional terms or is
made conditional Any tender of performance is ineffective if it imposes
conditions upon its acceptance which the offeror is not entitled to
demand. Riverside Fence Co., supra., at 662. However, the fact that a
purported acceptance adds a qualification to the agreed-upon option
does not in and of itself terminate the option. As long as the option
period has not yet expired, a party may still exercise the option
without qualification or condition (even though a prior [ineffective]
acceptance may have added such qualifications). Again, the option is
truly irrevocable.
The courts have explained that if the person offering to perform is
acting in good faith, and makes the mistake of demanding something to
which he is not entitled, he ought to be given the same opportunity to
recede from such demand that he is allowed for tendering the correct
amount where he has tendered too little, or the right thing where he
has tendered the wrong thing... Nattress & Associates, supra.,
at 67.
Waiver of Conditions
In the event that a party imposes additional conditions on the exercise
of an option, the offeree must specifically point out the alleged
defects in the tender or he waives the right to object to the
conditions. Civil Code §1501; Code of Civ. Proc.
§2076. The rationale of this requirement is that the offeror
should be allowed to remain quiet at the time of the tender and later
surprise the offeror with hidden objections. Riverside Fence Co.,
supra., at 662.
In addition, an optionor may not do any act or omit to perform any duty
calculated to cause the optionee to delay exercising the option within
the specified period. A court will look at the good faith of the
optionor. If he attempts to prevent the exercise of the option, his
behavior may excuse a failure to perform and other conditions precedent
to acceptance by the optionee. For example, in the Riverside Fence
case, the optionor failed to sign the escrow instructions but would not
explain why. The optionee offered to make corrections but the optionor
refused to identify any defects in the exercise of the option. The
court found that, although plaintiff had not performed, she had
attempted in good faith to tender performance and that defendant's
evasive conduct was calculated to prevent timely performance. The court
therefore precluded the optionor from asserting that there had not been
a timely or proper exercise of the option.
Laine T. Wagenseller is the founder of Wagenseller Law Firm, a full
service business and real estate law firm in downtown Los Angeles. The
firm represents real estate developers, business and property owners,
and investors. For more information, visit httpwww.wagensellerlaw.com
or contact Mr. Wagenseller at (213) 996-8338.
If
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mchfun.business@gmail.com
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