In 2014 Bronco Elite Arts &
Athletics entered into an agreement to lease commercial property from Tricon
Properties. The 10-year term commenced January 1, 2015. Two lease renewal options
of five years each followed the initial term.
The lease provided Bronco an
exclusive option to purchase the property for approx. $1 million, preceded by
Bronco’s notice to Tricon and remittance of $85k to Tricon as option consideration
applicable to the purchase price. Bronco was only entitled to exercise the
option if Bronco had not committed an event of default in the lease or
otherwise breached any of its terms or conditions.
Bronco paid the $85k option price by
check in two installments. The first check was for $25k; it was cashed on
December 19, 2014. The second check was for $60k. That check was cashed on
December 22, 2014.
Tricon conveyed the property to 106
Garden City in January 2019. On May 5, 2020, Bronco sent a letter to Tricon and
106 Garden, stating that it intended to exercise the option and specifying a
closing date of July 7, 2020.
On June 15, 2020, Bronco sued 106
Garden and Tricon for anticipatory breach of contract and specific performance,
asserting that both Defendants had refused to sell the property to Bronco. Both
Defendants answered and counterclaimed, asserting that Bronco breached the lease,
committed various defaults, and therefore could not properly exercise the purchase
option.
The district court determined that 106
Garden and Tricon had breached the lease by failing to honor Bronco’s purchase
option, and a judgment was rendered accordingly. The district court ordered
specific performance. All parties appealed.
The Supreme Court determined that
Bronco had breached the lease before Bronco exercised the purchase option on
May 5, 2020. It is evident that Bronco had breached the lease by failure to pay
late fees when Bronco did not timely remit rent. Under the provisions of the
lease, late fees were charged automatically if rent was not paid within seven
days after it is due.
Next, the Supremes found that Bronco
further defaulted by failing to remove the lien of a contractor Bronco had
engaged to modify the Property into a code-compliant gymnastics center. Mitigating
the lien filing was the failure of Tricon and 106 Garden to complain about the matter
for four years commencing March 11, 2016.
The lease contained a full
anti-waiver provision in favor of the landlord. Regardless, the Supreme Court
concluded that all defaults and breaches of Bronco had been waived and that the
purchase option was properly exercised. Judgment is rendered for Bronco; the
purchase option was properly exercised; Bronco is entitled to receive a transfer
of the property from the Defendants.
See Bronco Elite Arts &
Athletics v. 106 Garden City and Tricon Properties; Supreme Court of Idaho;
Case Nos. 49094 and 49523; August 18, 2023: https://cases.justia.com/idaho/supreme-court-civil/2023-49094.pdf?ts=1692372761.
Questions / Issue:
1.
We
know this to be an axiomatic truth: lease purchase options are not favored by
Courts and are strictly construed against tenants. Failure to toe the line *exactly*
as required by the lease renders void a purchase option. Right? Well . . .
perhaps not necessarily true . . . this case gives hope to defaulting tenants
everywhere . . . as lawyers throughout history have claimed, you just need to
convince a court that the non-waiver clause was waived (that likely makes sense
only to attorneys - others will just need to trust me that challenging a
non-waiver clause in a contract is a common litigation tactic).
2.
So,
if you are on the tenant side of the equation you now have an additional weapon
in your arsenal. But maybe when your next lease is drafted you could clarify
that minimal breaches and cured defaults don’t count, non-waiver clauses can
indeed be waived by inaction, and your valuable purchase right will continue if
landlord accepts the cure.
3.
But
no, you say, you are on the landlord side of the docket? Well then, the purchase
option needs to be written to self-destruct at the moment of a lease breach or
default, without any action or notice required by landlord. Ok so instead of “self-destruct”
perhaps you’ll use words like abrogate and vitiate. But you get my drift.
Stuart A. Lautin, Esq.*
* Board Certified, Commercial (1989) and Residential (1988) Real Estate Law, Texas Board of Legal Specialization
Licensed in the States of Texas and New York
Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.
