Right of Assignee or Sub-lessee to Enforce a Purchase Option

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Can an Assignee or Sub-lessee Enforce a Purchase Option Contained in a Commercial Lease?

It depends.  Unless restricted by state law, the general rule is that a purchase option in a commerical lease can be freely assigned.  Subsequently, most courts agree that the assignment of a commercial lease (i.e. lease dealing with business or for-profit property) containing a purchase option gives the new assignee the right to exercise that option.

In contrast, most courts do not allow a sub-lessee to enforce a purchase option, unless the sub-lease itself assigns the purchase option to the sub-lessee.

Why Do Courts Do This?

In the case of assignment, the idea is to transfer complete ownership of the lease from one person to another.  In other words, a new assignee takes over the same exact rights the original lessee had under the commercial lease.  Therefore, if the original lessee had the right to a purchase option, the new assignee should be given that same right.

The case of a sub-lessee is much different, because there is no transfer of ownership.  Rather, a sub-lessee is merely occupying property that the original lessee technically still controls.  Therefore, allowing a sub-lessee to exercise a purchase option (i.e. giving them ownership of the leased property) would conflict with the original lessee's rights to the leased property.  In other words, the sub-lessee would own the same property they are sub-leasing!

Can the Exercise of a Purchase Option Gained Through Assignment Be Restricted?

Yes.  A court may prevent an assignee from exercising a purchasing option if they feel the purchase option was intended only for the original lessee.

For example, suppose organization X, who rents and eventually sells land to start-up businesses, leases property to start-up Y with an included purchase option.  Now suppose Y decides to assign their lease to Z, a major department store chain, who wants to exercise the purchase option.  Because X is in the business of facilitating small businesses, a court is likely to infer that the purchase option was only intended for Y.

In addition, enforcement of a purchase option may be restricted if the assignment of the lease itself requires the consent of the original lessor.  Without obtaining the needed consent, the assignment itself is void, and the assignee cannot exercise the included purchase option.  In other words, a person cannot exercise a purchase option from a lease that was unlawfully assigned.

How Can a Lawyer Help Me?

If you an assignee or sub-lessee looking to exercise a purchase option in your lease, you should contact a real estate attorney to learn about your available legal options.  A lawyer can help determine whether the purchase option in your lease was assignable.  In addition, a lawyer can determine the likelihood of a successful claim in the case that the original lessor attempts to prevent exercise of the purchase option.

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Last Modified: 04-26-2013 01:44 PM PDT

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