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Ask Buachaill Your Own Question
Buachaill
Buachaill, Lawyer
Category: Republic of Ireland Law
Satisfied Customers: 10458
Experience:  Barrister 17 years experience
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I have a commercial property which was leased to a tenant on

Customer Question

I have a commercial property which was leased to a tenant on nine year, nine month lease , with an option to purchase at the end of the first 5 years or at 9 years three months at " vacant market value " -he has opted to purchase at 9 years 9 months , offering 1/5 of the purchase price ( 3 years rental ) . He also added a business partner to the lease in year 3, but this partner was not added to the option agreement . Is it possible to offer the property on the open market to determine " market value " and decline his offer , no the grounds of having a higher offer ? Also does the partner on the lease have any effect on the validity of the option ?
Submitted: 1 year ago.
Category: Republic of Ireland Law
Expert:  Buachaill replied 1 year ago.

1. The first thing you should be aware of, is that an option must be exercised strictly in accordance with its terms. Accordingly, as the option was only exercisable at the 5 year and 9 year 3 months stage, it cannot now be exercised at the end of the lease. So this purported exercise of the option is not valid. I am surprised your solicitor did not advise you of this fact.

Expert:  Buachaill replied 1 year ago.

2. Secondly, as the strike price for the option is the "vacant market value" any purported exercise of the option is not valid unless it is made at the vacant market value. So here, offering one fifth of the purchase price is not a valid exercise of the option either.

Expert:  Buachaill replied 1 year ago.

3. Any value placed on the commercial property would have to be accompanied by a valuation of the property at vacant market value with the purported price included.

Expert:  Buachaill replied 1 year ago.

4. The fact there is a partner on the lease part of the lease agreement does not invalidate the option agreement, Provided you assented to an additional party being liable for the lease payments, this did not affect the validity of the option agreement unless there is some clause in the lease which states this to be the case.

Expert:  Buachaill replied 1 year ago.

5. You have got very bad advice from your solicitor. He doesn't seem to have an understanding of an option agreement. An option agreement is only a right to buy, not an obligation, which gives the option holder the right to buy a predetermined price, known as the strike price. However, to exercise an option, y ou must first comply with its terms.

Customer: replied 1 year ago.
Apologies but the option was exercises at 9 month ears 3months , iecwwithin the lease term . The price offered was 1/5of my initial purchaecprice in2004 . Unfortunately other buildings in the town have gone seriously in value , and I am unfortunate to have this option
Expert:  Buachaill replied 1 year ago.

6. If the option was exercised correctly at the right time, then the only issue is whether the option holder is giving vacant market value. Here, you should agree on a valuer to value the property. Then if the person holding the option gives you this value, then you will be stuck with it.

Expert:  Buachaill replied 1 year ago.

7. I know this might be only one fifth of the purchase price. However, this is the situation you find yourself in as a result of a previous bad decision. You are not in a position to decline the vacant market value provided there is a valuation supporting this price. You are no longer in an offer and acceptance situation as the option only gives one price - vacant market v alue.

Expert:  Buachaill replied 1 year ago.

8. Here it might be cheaper to see if the business owner will allow you buy the option back as this will then allow you to use the money from the lease payments to pay back the debt. It is only worth so much to him but your loss is greater. That is you will have a much greater debt on remortgaging your house and nothing to service it than if you pay him the value of the option. I assume you already have borrowings for the commercial property.