Option, Payment to Lawyer of Optionee Invalid Exercise of Option; Confirmation Added to Addendum, of Discussion With Seller, Was Not a Counteroffer #331

Jan 01, 2001

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By Gerry Neely
B.A. LL.B.

An owner who sold a building lot took back an option to repurchase it if the buyer did not construct a dwelling house upon it by a fixed date. The option had to be exercised by a payment to the buyer of $20,000 within three months of the date. Construction of the house did not proceed and the owner exercised the option within the three-month period. He paid the $20,000 to his lawyer who advised the buyer that he had the funds in trust, to be paid to the buyer, subject to adjustments, upon the buyer's execution of the transfer form.

The buyer refused to do so, and successfully resisted the owner's action to enforce the option. The judge accepted the buyer's argument that, by failing to pay the amount to the buyer directly, as called for by the option, the owner hadn't validly exercised the option.

This is an example of how strictly the terms of an option will be interpreted against the person having the benefit of the option. When a licensee has a subject clause in an offer, which may have the effect of creating an option, any cash consideration to support the option should either be paid to the seller or the option clause should clearly set out the alternative.1

* * *

An offer to purchase property, upon which a leasehold restaurant business was carried on, contained a subject clause entitling the buyer to examine the lease and to remove the clause if he was satisfied with it. The buyer's agent received a copy of the lease with a request that he call the owner.

They discussed alterations to the restaurant and the agent asked the owner if a final inspection by the municipality had been completed. The owner said he didn't expect there would be a problem and that he would call for an inspection. The agent sent the usual addendum removing the condition and added to it the following sentence: "Seller agrees to provide final inspection certificates for alterations re above lease, by September ..."

The owner, who was the former owner of a real estate agency, decided that this was a counteroffer and declined to complete, unless the buyer agreed to pay $10,000 more for the property. Rather than do this, the buyer sued to enforce the contract.

Whether a communication from a buyer is a counteroffer or merely a request for information, or confirmation of a statement or agreement made by the seller, depends upon whether the facts support an intention to reject the terms of the offer. Upon the facts of this case, the judge concluded that the addition to the addendum only expressed the agreement by the owner to apply for and provide the inspection reports.

In reaching this conclusion, the judge attached particular significance to the fact that the owner had not been asked to sign the addendum, which he would have been required to do if the addendum had been intended to be a counteroffer.2

  1. Rae v. Paduano, BCSC, Invermere Registry, Reasons for Judgment, June 26, 2000.
  2. Montane v. Schroeder, BCSC, Kamloops Registry, Reasons for Judgment, March 27, 2000.

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