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Is a Tenant's Option to Purchase Assignable?
Last year, a Missouri appellate court affirmed a lower court's holding that where a lease prohibited a tenant from assigning its interest in the lease without the landlord's consent, the tenant also could not assign an option to purchase the real property the tenant was leasing from the landlord, without the landlord's consent. That court held that a tenant's rights under an option to purchase were a covenant that ran with the land, and that the tenant could not assign those rights without the landlord's consent because the lease limited assignment of the lease generally. Megargel Willbrand & Co., LLC v. Fampat Limited Partnership, No. ED 86570, 2006WL956963 (Mo. Ct. App. Apr. 11, 2006)
The court in the Megargel case treated the lease's limitation on assignment as applying to the option to purchase as well as to the remaining provisions of the lease. In other cases, however, courts have held that an option to purchase is a covenant independent from the lease in which that covenant is contained. See, e.g., Holmes v. Harris, 110 A.2d 329, 334 (N.J. Super. Ct. App. Div. 1954) (citing other cases). In the case of such treatment, even where a lease contained a limitation on assignment that applied to the lease generally, the tenant's rights under an option to purchase contained within that lease could be freely assigned.
This article discusses the consequences of different interpretations of the assignability of a tenant's option to purchase. These consequences should be considered by tenants, landlords, the successors-in-interest (or potential successors-in-interest) of either of them, and the counsel who advise each of them. The article offers practical tips for how to prepare a lease provision regarding the assignability of rights under an option to purchase in a manner that will clarify the parties' rights and minimize the possibility of a failed exercise of an option to purchase.
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