Question : I want to sign a lease for an option to purchase. The Landlord has provided me with a lease, and added a paragraph that says "tenant has an option to purchase this property." That does not seem like quite enough. What should the option include?
Answer :We are seeing more leases with option to purchase. That is probably due to the mortgage meltdown and difficulty in obtaining financing, especially for those who have already been through foreclosure.
A lease with an option to purchase is really a contract, with a right to enter a second contract. To be valid and enforceable, a contract must evidence a meeting of the minds on all essential terms. The option language in your lease does not appear to meet that requirement. Your situation is not unusual, as parties to a lease option all too frequently focus on the lease and give little thought to the purchase agreement. To be enforceable, the purchase agreement must evidence that the parties agree on all essential terms.
Essential terms of an option contract are those required for an enforceable real estate purchase contract. Those include a requirement that the agreement be in writing, sufficiently describe the property so there is no dispute as to what property is involved, identify the parties, establish a price, a time during which the option may be exercised and when and how payment is to be made. In addition to the essential terms, it would be prudent to include manner in which notice is to be given that the option is being exercised and to whom the notice must be given.
If there are any other details of the purchase that are important, they should also be included in the option. Those could include a right of inspection, a financing contingency or other contingency.
The option need not include nonessential terms, such as time of day for closing. Other terms, which may seem essential, can be implied by reference to local practice. Those could include the manner of conveyance, warranties to be given, responsibility for closing costs and responsibility for insurance through closing.
Florida courts have allowed some uncertainty on essential terms. An option to purchase for "market price" at time the option is exercised is enforceable. On the other hand, a long term option to purchase at a fixed price may be void as an improper restraint on the owner's ability to sell.
Even when it appears an option is clear and definite, the court may not agree. In the case ofPomares v. J. Krantz, Enterprises, Inc., a prospective purchaser attempted to exercise an option to purchase property and a business at fair market value. The option was for a period of 10 years at fair market price to be determined by appraisal. The appellate court held the option unenforceable because it failed to mention terms of payment or time for payment and was therefore unenforceably vague. On the other hand, it appears that if you forget to put a closing date in the contract, a reasonable time for closing will be implied.
Since exercise of the purchase option creates a real estate purchase contract, the option should also include terms required by Florida statute or other applicable law. Those terms include mandatory disclosure and right of cancellation under the Condominium Act or Homeowner Association Act. Florida requires radon gas disclosure language in real estate sales contracts. Florida also requires that the buyer be provided a brochure on the Florida Building Energy Efficiency Rating System. Failure to include language mandated by statute could make the contract illegal and render it unenforceable.
As you can see, preparation of a lease with an option to purchase should not be taken lightly. It requires expertise and I suggest the best expertise is available through consultation with an experienced attorney.