Option Listing
An option listing is a real estate listing whereby the broker is granted the option purchase the listing themselves. In an option listing, the broker can technically be the principal and the agent on the same deal. Such listing present potential conflict of interests. Agents are required to disclose all offers to the seller. Failure to disclose all offers may result in a revocation of the agent’s license. The broker must inform the principal of all offers and if he or she decides to use the option to purchase the listing, the broker must disclose his or her intention to purchase.
Lease Options
A lease option provides a tenant the ability to purchase the property he or she is renting in the near future. In such an agreement, the tenant and property owner agree that, following the end of the lease agreement, the renter has the option to purchase the property. The rental payments may constitute a down payment towards the purchase of the property.
The lease option must be in writing and should indicate all clauses which relate to the successful close of a transaction, including details like close date, expiration of the lease option, and amount for the sale and rent. There are no specifics with regards to the fee or percentage that a renter must pay; however, standard practice dictates that the renter will usually pay a fee equivalent to 3% to 5% of the total purchase price in interest to secure a lease option.
Case Law As It Relates to Option
Case Review: R.J. Kuhl Corp. v. Sullivan (1993)
In the case, R.J. Kuhl Corp. v. Sullivan (1993) 13 Cal.4th 1589., a broker sued a buyer over a breach of contract dispute.
A broker (R.J. Kuhl Corp.) found a property for a buyer (Sullivan). He set up a deal, but ultimately, the property was sold to a third party. That third party later approached Sullivan and gave him the option to purchase half of the property’s interest. Sullivan agreed and entered into an agreement with the third party. When R.J. Kuhl Corp. was made aware of this, he sued Sullivan and the third party for breach of contract, interference with a contract, and conspiracy to alter an existing contract.
R.J. Kuhl Corp. claimed that he was entitled to his broker’s commissions for the sale of the property. Sullivan opposed this, saying that his original agreement with R.J. Kuhl Corp. did not lead to the direct purchase of the property. The Superior Court ruled in favor of the broker. It held that as a result of going around R.J. Kuhl Corp. and not paying the commission, Sullivan had gained an unfair profit from the broker’s services. Sullivan appealed, but the appellate court affirmed the lower court’s ruling. Sullivan was held liable for R.J. Kuhl Corp.’s fees.
Case Review: Gates Rubber Co. v. Ulman (1989)
The case, Gates Rubber Co. v. Ulman (1989) 214 Cal.3d 356., involved a dispute over the recording of a tenant’s purchase option.
A tenant (Gates Rubber Co.) had a purchase option on a property. The agreement stated that the tenant could pay $550,000 for the property upon the completion of a 25-year lease. Six years after the start of the purchase option, the owner sold the property. The new property owner (Ulman) was not informed of Gates Rubber Co.’s purchase option at the time of the sale. When Ulman refused to recognize Gates Rubber Co.’s right to purchase the property, Gates Rubber Co. sued.
The Superior Court discovered that Gates Rubber Co.’s option to purchase was in a separate agreement that was never actually recorded. It ruled in favor of Ulman. Gates Rubber Co. appealed. The appellate court upheld the lower court’s ruling. It ruled that while Ulman had a duty to verify tenant leases, he did not have the duty to verify the rights of the tenants, particularly when they were never recorded. Ulman was therefore entitled to all interest of the property and not required to transfer or sell any interest to Gates Rubber Co..
