Case Notes

31.1. Purchase Option. PROVIDED TENANT IS NOT IN DEFAULT AND HAS LEASED THE PROPERTY CONTINUOUSLY FROM THE DATE HEREOF UNTIL SUCH DATE, LANDLORD GRANTS TO TENANT, AFTER NINE (9) MONTHS FROM THE COMMENCEMENT DATE HEREOF, AND EXPIRING Forty-eight (48) MONTHS FROM THE COMMENCEMENT DATE HEREOF, ONLY (the “Option [*3] Period”), THE OPTION TO PURCHASE FROM LANDLORD THE REAL ESTATE OF WHICH THE PREMISES IS PART AND WHICH IS MORE PARTICULARLY DESCRIBED ON EXHIBIT B. TENANT MAY EXERCISE THE OPTION BY PROVIDING WRITTEN NOTICE TO LANDLORD AT LEAST NINETY (90) DAYS PRIOR TO THE DATE OF CLOSING (the “Option Event”).

(Emphasis in original.)

The purchase option clause therefore permitted the tenant to exercise it if it did so before Jan. 31, 2017. On Jan. 27, 2017, New Era sent Siarah notice that it was exercising the option. That same day, Siarah sent New Era notice that it was terminating the lease and demanding possession within 30 days.

The tenant did not vacate, so Siarah filed a petition in county court for a writ of possession. New Era counterclaimed seeking an order of specific performance compelling the owner to sell the property to New Era.

The trial court found that New Era had adequately exercised its option and that Siarah did not terminate the tenancy before this happened. Therefore, New Era was entitled to purchase the property in accordance with the terms of the lease. Siarah appelled.

On appeal, Siarah argued that it terminated New Era's tenancy on Jan. 27, 2017, thereby also terminating its option to buy. But the appeals court agreed with the trial court that when New Era exercised the option to buy on Jan. 27, 2017, New Era became a purchaser in possession, rather than a tenant. Jackson v. Southern Pan & Shoring Co., 260 Ga. 150 (1990) (“The effect of such notice [of exercise of the option was] to metamorphose the option, optionor and optionee into a contract of sale, vendor and vendee.”). After that point, New Era's occupation of the premises was as a purchaser under a contract, not as a tenant. From that point forward, stated the court, “there was no longer a landlord-tenant relationship, [so] there was no tenancy for Siarah to terminate.”

The landlord contended that a mere statement of intent to buy did not suffice to exercise the option; instead, the option was not exercised unless and until the purchase was finalized. To this, the court replied:

Siarah argues that in order to validly exercise the option, New Era had to actually purchase the property on or before January 31, 2017. We disagree. As noted above, on January 27, 2017, within the contractually defined option period, New Era sent written notice to Siarah that it was exercising the option, and it scheduled a closing for May 12, 2017, more than 90 days later. These actions complied with the requirements as set out in the lease contract and were effective to exercise the option. Contrary to Siarah's argument, nothing in the contract requires the closing of the sale to occur within the option period.

The court rejected Siarah's contention that the purchase option was not validly exercised because the purchase price had not been tendered based on Pritchett v. Dodd, 112 Ga. App. 453 (1965). Pritchett specifically held that “[a]n option to purchase can be exercised without the payment of the purchase price, or the tender thereof, unless the option contract provides for such payment as a condition precedent to the exercise of the option. On the sale of land, in the absence of express agreement, the payment of the purchase money and the delivery of the title deed are concurrent acts.” Nothing in the Siarah/New Era lease required the tender of the purchase price in order to exercise the purchase option, so, following the teachings of Prichett, no such tender was required here.

Siarah next argued that even if tender of the purchase price was not required to exercise the option, it was required of a plaintiff seeking specific performance of a land sale contract (see, Peaches Land Trust v. Lumpkin County School Bd., 286 Ga. App. 103 (2007) (“Georgia law explicitly requires tender of the contract sales price to obtain specific performance”); Burns v. Reves, 217 Ga. App. 316 (1995) (“(B)efore equity will decree specific performance of a contract for the sale of land, there must be an absolute and unconditional tender of the purchase-price. An offer to pay the purchase-price on delivery of a properly executed deed is not an unconditional tender.”) (citations and punctuation omitted).”). The court here pointed out, however, that while tender of the purchase price might generally be required under Georgia law before specific performance can be ordered, an exception exists when such tender would likely not be accepted. In this case, the appeals court agreed with the trial court that Siarah would not likely have accepted tender of the purchase price, as evidenced by several exchanges between the parties. These included the landlord's attorney's Feb. 17, 2017, letter to New Era declaring that the attempted exercise of the purchase option was insufficient and that attorney's further rejection of New Era's claim to the right to purchase even after it gave notification that it had arranged financing and was ready, willing and able to consummate the purchase. These and other actions on Siarah's part convinced the appellate court that Siarah had waived the requirement of tender of the purchase, so that New Era's failure to do so did not bar it from seeking specific performance.

The one disagreement the appeals court had with the trial court's decision pertained to the amount of rent owed by New Era to Siarah. New Era had deposited funds with the court pending the outcome of the case, but the trial court did not take everything into account that it should have when determining the amount of rent due to Siarah. The court explained: “Here, it is undisputed that, at least until the closing of the purchase pursuant to the option, Siarah owns the property and New Era occupies it. So the trial court did not err in ruling that Siarah is entitled to at least some of the funds New Era has paid into the court registry for rent and other charges. But it does not appear that the trial court considered New Era's breach-of-contract counterclaim when considering the amount of the funds to be released.” The appeals court determined that the trial court erred by failing to consider New Era's breach-of-contract counterclaim, and so vacated the award of past-due rent. On remand, the court instructed the trial court to determine whether New Era is entitled to breach-of-contract damages and, if so, consider reducing the amount of funds from the court registry to be awarded to Siarah.