A dispute over the purchase price of a veterinary practice boiled over into multi-year litigation after the plaintiff in Ruffolo v. Jordan, 2015 IL App (1st) 140969 leased the defendant’s practice under a multi-year lease with an option to buy.
The plaintiff exercised the purchase option in August 2005 and paid rent for 18 months until finally stopping in March 2007 when it became clear the parties wouldn’t resolve the purchase price issue.
The plaintiff sued for specific performance and the trial court granted summary judgment for her, ordering defendant to sell the property for $525,000 – a figure midway between the parties’ respective appraisals. Defendant appealed.
Affirming summary judgment, the First District examined the interplay between parties rights and duties under a lease that contains an option to purchase the property.
The lease gave plaintiff an option to buy the property at a price to be determined by the parties’ handpicked appraiser. Eventually, the parties’ appraisers selected a third party to appraise the property. When the defendant refused to sell at the third-party appraiser’s $525,000 figure, plaintiff sued to enforce the purchase option.
In Illinois, the goal of contract interpretation is the intent of the parties and a contract must be interpreted as a whole and ascribed its terms’ plain and ordinary meaning. ¶ 10
A party is entitled to specific performance of a contract for real estate where it establishes that it was ready, willing and able to perform under a contract but was prevented from doing so by the other party.
When a lease contains an option to purchase, it becomes a present contract for the sale of the property. Once the option holder exercise the option, the relationship of landlord-tenant morphs into one of vendor-vendee (seller-buyer). A contract for the sale of land cannot be enforced until all essential terms are established, including sale price. (¶ 14).
Here, the parties’ landlord-tenant relationship didn’t end until the sale price was mutually agreed upon. As a result, the parties’ had a concurrent landlord-tenant relationship vis a vis the lease and a vendor-vendee one concerning the purchase option.
In finding for the plaintiff, the court rejected seller defendant’s argument that plaintiff breached the lease by not paying rent for several months. Defendant claimed that the plaintiffs’ failure to pay rent from March – October 2007 nullified the purchase option exercised by plaintiffs in August 2005.
The court held that since the plaintiff was in compliance with the lease when she exercised the option (August 2005), she could enforce the purchase contract. The court explained that once the plaintiffs’ right to purchase the property vested, her corresponding right to buy the property no longer depended on her adhering to the lease terms. The lease became severable (separate) from the purchase option once plaintiff exercised the option. (¶¶ 19-20).
The one consolation for the defendant was that the court found it was entitled to a credit of seven months of unpaid rent towards the purchase price. This figure will be calculated on remand.
Take-aways:
1/ A lease with an option to buy creates two distinct agreements once the option is exercised;
2/ The timely exercise of an option can’t be negated by a later lease breach;
3/ A definite price term in a real estate contract is a necessary precondition for a successful specific performance suit.