Thursday, May 20, 2010

Interpretation Of Purchase Option Clause After Lease Default

In Welde v. Top Video & Productions USA, Inc. (3D08-3115), the Third District reversed the trial court's order and disagreed with its interpretation of a purchase option in a lease.  The trial court rejected the lessor's main argument but accepted its alternative argument that because the lessee had been in default it could not exercise a purchase option.  The Third District disagreed and stated:
The purchase option said, “Lessor hereby grants to Lessee, during the term of this Lease, and provided that the Lessee is not in default of any part of this Lease Agreement, an option to purchase the property for the following prices . . . .” The trial court took this language to mean that if the lessee had ever been in default at any time in the past, the lessee could not exercise the option to purchase–even if the lessee had brought all obligations current by the time the lessee exercised the option. We respectfully disagree with the trial court’s interpretation. The language means that the lessee must not be in default on the date that the lessee exercises the option.
The evidence showed the lessee sent the lessor written notices of his intention to exercise the option on three separate occasions. If on any of these three dates the lessee was not in default, then the lessee was entitled to exercise the option. If the lessee was in default on all three exercise dates, then the lessee was not entitled to exercise the option.


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