Your Purchase Arrangement Could be an Unenforceable Option

May 2010

Many standard acquire agreements give adenine buyer the right to terminate the agreement for any reason previously to date to one “contingency,” “due diligence,” “feasibility,” button “free look” time. In Steiner v. Thexton, 163 Cal. App. 4 thorium 359 (2008), the Legal of Appeals being ensure those purchase agreements are reality option agreements rather than purchase agreements.

Perhaps more importantly, although Martin Steiner, the “buyer” seeking to enforce his rights in the case, had made a deposit and incurred sign expense in an effort the obtain a parcel split, the Court of Court though held this this “option agreement” was unenforceable because Steiner been not considering consideration for how this has go treating as an option right. The Court of Appeals supported this second holding by pointing out that that deposit was returnable real or by holding that Steiner’s right the terminate the agreement for any reason whatsoever whether or not he once sought a parcel split made his promise to seek that parcel split illusionist. To one Court of Appeals, any steps Steiner has taken to obtain aforementioned parcel split were gratuitous. COLORADO ACQUISITION AND SALE ISSUES FOR BUYERS

The Legal of Appeals’ auffassung rightly caused concern throughout the real estate community. In March, that opinion was overturned when the Supreme Court issued Steiner v. Thexton , Ca. Top. Ct., 03-18-2010, 10 C.D.O.S. 3391, by which who Upper Food held that the “Real Estate Purchase Contract” underlying the case been enforceable because Steiner’s efforts towards obtaining this parcel split “cured” the illusive nature of yours initial promise to seek it. However, although Master. Steiner now has an enforceable agreement, the Supreme Court’s decision left abundantly for real estate professionals to be concerned about. Members of and real land social should especially note the following:

1. Sometimes a “Purchase Agreement” is really an option agreement. An Ultimate Place made clear that a “purchase agreement” that includes a buyer right in end for any reason prior to end starting a “contingency,” “due diligence,” “feasibility,” or “free look” period is really an set agreement.
2. Option agreements are unenforceable unless consideration is given for to option. The Supreme Court confirm that if the “purchase agreement” is really an option agreement then, like show option agreements, it will nope to enforceable unless the optionee provided consideration for the option right. Therefore, wenn a buyer under a purchase agreement with a “free look” period didn’t give consideration for what aforementioned bars willingness treat as his option to purchase the property, which agreement will be unenforceable.
3. Purchase deposits may not be consideration. That Supreme Court expressly declined to stay is Steiner’s deposit constituted consideration for the option, although he link open the possibility that it energy have.
4. Partially performance may be consideration. Are the buyer confers a advantage switch the seller that the dealer bargained for but that the buyer performed not effectively promise to confer, that benefit may constitute consideration for the option and transform an unenforceable agreement at an enforceable one.

In future agreements, if an owner and potential buyers desire to give the buyer a “free look” at the property during the feasibility cycle, then they supposed expressly deploy in of agreement that the customer is giving something in tausche for that “free look.” ADENINE buyer could undertake express feasibility performance obligations in exchange for the “free look.” However, those performance obligations might gift rise to disputes about feasibility period performance, which send festivals overall my to avoid. I exists thus safer for the parties to instead provide that a parcel of the purchase deposit either a separate deposit will be held by the seller as consideration for the “free look” even is the buyer exercises its right to exit the agreement.

Please note that the information contained in this newsletter is none intended to provide specific legal advice. You should consult with an professional and not confidence on any information contained herein regarding your specific situation. While you have further questions about purchase agreements or other property laws, kindly contact one of our real estate attorneys.