Just last week, the Washington Supreme Court issued a decision in recognizing that options to purchase real estate must be exercised on time, on or before the deadline. This is a long-standing and strictly enforced rule. In Borton & Sons, Inc. v. Burbank Properties, LLC, though, the Court provided additional information about the long-standing but “very limited” exception that might allow a potential purchaser a little extra time.
Burbank Properties sold 164 acres of farmland to Borton & Sons. Burbank then leased back the land for three years, with an option to buy it back. The purchase option required Burbank to send its exercise notice by registered or certified mail no later than Dec 31, 2017.
Burbank inadvertently let the date slip by. On Jan 4, 2018, Burbank sent an exercise option letter via regular U.S. mail. Borton received the exercise notice on Jan 8 and refused to honor it. The parties went to court.
After years of litigation and appeals, the Washington Supreme Court refused to grant Burbank’s claim to the purchase option. The parties debated and the Court analyzed the five-factor equitable relief test created in Wharf Rest., Inc. v. Port of Seattle in 1979 for inadvertent failures to exercise an option on time. The five factors include:
(1) the failure to give notice was inadvertent,
(2) an inequitable forfeiture will result if equitable relief is not granted,
(3) the landowner did not change its position and did not suffer prejudice,
(4) the lease was for a long term, not a short term, and
(5) there was no undue delay in exercising the option.
Burbank argued these five factors were met. More specifically, Burbank argued the second factor was met because if the option were invalid, Burbank would not be allowed to harvest the crops it hand planted on the land. The Court disagreed. It carefully reviewed previous case law and found the second factor would only exist under Washington law if the optionee had made valuable permanent improvements on the land. Crops were not permanent. “Burbank’s inability to reap its hay crop, while unfortunate, does not amount to an inequitable forfeiture.”
Takeaway: Calendar the deadline(s) for your real property purchase option and follow them strictly and early (if possible). If you are going to make permanent improvements to the land, consider doing so before the option period expires and call your attorney to help you prepare.
If you have any questions, don’t hesitate to contact us. At HLG, we’ve been helping business clients for many years. We specialize in a wide range of law practices, including business transactions, business planning, business finance as well as commercial real estate, civil collaborative law, land use, and environmental law.