Opinion ID: 1382969
Heading Depth: 1
Heading Rank: 1

Heading: interpretation of the option to purchase

Text: The question is whether the option to purchase the property could be exercised as late as August 27, 1968. The trial court interpreted the relationship between the parties as creating separate agreements as to the lease term and the option to purchase. In so doing the court relied upon Denver Plastics, Inc. v. Snyder, 160 Colo. 232, 416 P.2d 370 (1966), as authority that the lessees could either exercise the option to purchase or extend the term of lease beyond 1962, but that they could not extend the term of the lease for five years and still exercise the option during the second five-year term. The court concluded that the purchase option could be exercised only on September 1, 1962, and that it lapsed thereafter. We find this interpretation difficult to accept. First, Denver Plastics, Inc. v. Snyder, supra, is distinguishable from the case at bar. There the lease was phrased in strict alternatives: by its terms it would expire unless one of two choices were made. The lease could be extended or an option to purchase could be exercised. But the lessee extended the lease and later sought to enforce the option provision. The court held this impermissible, as the extension of the lease was tantamount to an election to forego the benefit of the option. By contrast, in the case before us, under the second supplement the lease was to run for ten years regardless of whether the option to purchase was exercised at any time. [1] Second, it is difficult to read the language concerning the option, may not be exercised prior to September 1, 1962, as the equivalent of may be exercised only on September 1, 1962. Such an interpretation would mean that during a ten-year relationship, a substantial right arose and vanished all in one day. Surely this would be justified only if the language used pointed clearly to such a result. The words not    prior to September 1, 1962 seem rather to imply that what was before then prohibited would become permissible thereafter, as long as the contractual agreement subsisted between the parties. The lease, by the terms of the second supplement, was to obtain for ten years after lessees either took possession of the new addition to the building or the addition was completed, whichever occurred first. Third, if we treat the original lease agreement as the basic document, with the second supplement merely creating an extension of the original term, an important barrier would have to be overcome in order to rule in favor of lessors. This is because the original agreement says that the lessees may, at the end of the original five-year term, extend the lease for an additional five-year term, in the event they do not elect to exercise their option to purchase at that time. Said additional five-year renewal period shall be at the same terms and conditions as outlined herein. In the vast majority of American jurisdictions such ambiguous language has been held to carry forward the option to purchase into the renewed or extended term. Hindu Incense Mfg. Co. v. MacKenzie, 403 Ill. 390, 86 N.E.2d 214 (1949); Lexington Flying Service, Inc. v. Anderson's Executor, 239 S.W.2d 945 (Ky. 1951); Moiger v. Johnson, 86 U.S.App.D.C. 219, 180 F.2d 777 (1950). The few authorities to the contrary resort to the rigid view that the option to purchase must, to survive, be expressly mentioned as carrying over into the extended or renewed period. See Pettit v. Tourison, 283 Pa. 529, 129 A. 587 (1925). This reflects adherence to the view that the option to purchase does not directly affect or concern the ordinary relationship of landlord and tenant. Therefore, it should not be deemed to run with the land and bind the holder of the reversion, absent clear expression of such an intention. Sherwood v. Tucker, [1924] 2 Ch. 440 (Ct.App.Eng. 1924). Most American courts, however, attempt to gather the intention of the parties from an examination of the whole transaction and an objective interpretation of the particular language used by the parties. We favor that approach. In the case before us we find the second supplement to be more than a simple extension of the lease. It brings about what is essentially a different agreement between the parties. It significantly alters the length of lease term, the amount of rent, and the amount of purchase price in the event that the option to purchase is exercised. It is noteworthy that the parties dealt with both the lease term and option in each agreement as parts of the entire bargain between them. We can find no sound reason for regarding the lease and the option as severable contractual obligations in this particular setting. By continuing to allow to lessees an option to purchase not    prior to September 1, 1962, but by fixing a total lease term to end at some time after August 27, 1968, it is apparent that the second supplement expressed one indivisible bargain. Accordingly, the option to purchase had vitality until the end of the new term. We conclude that on July 18, 1968, lessees had an enforceable right to exercise the option to purchase and compel specific performance of the agreement. This assumes, of course, that lessees still had rights under the lease agreement and that it had not been terminated. These are the questions we must next discuss.