Lease/Option: Watch Out

Over the last five years or so there has been a noticeable increase in Washington in the use of residential leases that include an option to purchase.  These are often put together by either the buyer or seller and treated rather informally.  This is a mistake for both parties, as the lease/option is becoming commonplace in the courts and the source of a great deal of anguish.  There are a host of technical reuqirements that the instrument must meet in order to be enforceable.  Typically a home-made lease/option lies in a nether world where it is arguable whether the technical requirements are met.

The recent case Pardee v. Jolly is an example of the legal entanglements and uncertainty in which one finds oneself in entering into a home-made lease/option. Shortly after signing the nefarious thing, the parties found themselves in court.  The judge held that the document had been properly enforced and ordered the landlord/pwner to convey to the tenant.  The landlord/owner appealed and the court of appeals reversed the trial judge.  The tenant then appealed to the Washington State Supreme Court and the Court reversed the court of appeals, sustaining the trial judge in part and remanding for further proceedings.

In drafting an option one must satisfy the statute of frauds among other things.  This requires a full legal description and an adequate writing.  It should have virtually all of the elements of a valid purchase and sale agreement.  If formalities are observed the option must be exercised in conformance with the requirements of the option.

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