Landlord Can’t Unilaterally Change Option To Purchase

Landlord Can’t Unilaterally Change Option To Purchase

Last year, a client who was a tenant under a commercial lease came to me wishing to execute an option to purchase he had under the lease. The premises were used for a night club in the Wynwood area of Miami. When the lease was originally negotiated and executed, Wynwood had not yet taken off and the value of the building was only about $500,000. The Landlord was not quite ready to sell the building and Tenant wanted to establish its new business before committing too much capital to the project, so a lease option worked well for both parties. They agreed to a 5-year lease with an option to purchase during the first 3 years of the term. The option price was set at the then market value of the building and escalated at the beginning of each of the 3 option years.

Tenant was to construct and pay for its own Tenant Improvements and in fact spent over $250,000. By the time Tenant came to see me about the option, the property value had significantly increased as Wynwood had become a very hot area of Miami. Based on conversations that Tenant had been having with Landlord, Tenant was concerned that Landlord was having seller’s remorse and wanted to sell the property to a third party at the end of the Lease Term at the current market value or renegotiate the option price. The market value of the property was nearly twice that of the then option price.  But the option was clear. Tenant had the right to purchase the building at the option price at any time during the first 3 years of the lease term.

Knowing that we had a potential dispute coming, it was very important that we take the proper steps to exercise the option and follow all requirements in the lease, including the notice of exercise of the option, to the letter. The first response to our notice that we received from the Landlord was a letter denying the validity of the option but offering to sell the building to the Tenant at a higher purchase price. At that point, we knew that the shake down was on. We proceeded as if we were going to close, again following the option and closing provisions set forth in the lease precisely. We did due diligence, ordered title and survey, sent required notices and upon the closing date, tendered payment of the purchase price. When Landlord (seller) did not close on the closing date (which was prescribed in the lease), we declared a default under the lease and thereafter filed a lawsuit for breach of the lease demanding specific performance of the option and damages, including recovery of attorneys’ fees. The trial court ruled for the Tenant on all counts and specifically recognized the care that we took to preserve the option and attempt to close the purchase.

In exercising rights under a contract or lease, it is important to follow the written provisions carefully. Don’t go at this alone. Even one innocent mistake in following contract provisions can jeopardize your case.