Real estate purchase option contract - failure to give written notice = expiration?

[LeeH]

2 years ago, a tenant all but begged me to sell him a house I had for rent. I was on the fence at the time. He talked me into a 2 year option agreement.

The future value we placed on the house, is, of course, a bit lower than its actual value now. He called me up a couple of months ago and said he was trying but not having luck getting financing. He said he wanted to try to buy the house and would keep looking for a mortgage. He's self employed and apparently has reported minimal income on his taxes.

The option expires in 30 days. I pulled out the contract today to review it and realized that one of the provisions is that:

"Tenant may exercise this option by: A. Providing WRITTEN notice to Landlord of Tenant's decision to exercise the option with a minimum of 60 days' notice prior to the expiration of the option term."

I never received any written notice from him. The expiration is 30 days away. My thought was to just call him up and tell him I reviewed the agreement and that it looked like the window had closed for him to exercise the option based on the fact the he never provided written notice. If he buys the house at the option price, he'll buy it for around $50K under the current market value.

Thoughts?

[john70t]

""Tenant may exercise this option by: A. Providing WRITTEN notice to Landlord of Tenant's decision to exercise the option with a minimum of 60 days' notice prior to the expiration of the option term.""

It looks like 3 conditions have not been met. No offer. No deal.
Wishing and wanting does not apply.
That's too bad for him. I wouldn't worry about it.

[dad911]

Why ruffle his feathers? You haven't heard from him in a few months. If you hear from him before the expiration(unlikely) that is the time to point out he is too late.

[RANDY P]

If he doesn't qualify it doesn't matter- even if he claims no deductions this year he still likely won't qualify- his income won't average out over 2 years.

rjp

[look 171]

Let this ride. LIke Dad911 and many others said, he's not getting the house, due to various reasons. Its time to pack it up and sell it at market and make the money you deserve. If he comes back at ya, then point out the finer prints for him.

[McLovin]

Why would you raise this issue at this time??
That makes no sense.

[Seahawk]

The one thing that is missing from your OP is whether or not you plan on selling the house or continuing to rent it.

Has he been a good tenant, good guy?

If so, I would communicate to him the details in your OP...but I would suggest some options be discussed: Adjustments to the options price, extending the agreement, with a price that adjusts to reflect current and future market value, etc.

Life is a negotiation and there will be costs incurred if he vacates and you have to prepared to sell it, time to sell, lost rental income, cost of a real estate agents, etc.

Just something to think about.

Manage his expectations now rather than surprise him should he manage to come up with a loan. You know now, I think it is unfair to wait while he scrambles and wastes time and energy trying to secure funding.

[RANDY P]

Heck, offer to finance him- at current market value. Something goes wrong, you get your house back

rjp

[Por_sha911]

Why pizz off the person who is living in the rental? They may decide if they can't buy it to trash the place and move. Wait another few months and when there is no communication then either keep collecting rent or sell it elsewhere.

[LeeH]

He's a great tenant... in 2 years, haven't heard from him since the week he moved in. My thinking in notifying him is to NOT p|ss him off. He did state that if he can't buy the house that he has no intentions of moving.

Right now he could be jumping through all sorts of hoops trying to come up with the funds to buy. My mortgage guy said he'd have no problem funding him. Of course, I didn't share that with the tenant. If he keeps going to banks, he'll keep getting turned down. But, if he finds a creative mortgage broker, he can probably get funded. I mean, he already has $50K worth of equity in a $250K house (900 sq ft, 2br/1ba, 55+ community). If he puts in a little more money, it would be a no brainer as his payment for the mortgage could be half of what he's currently paying for rent.

So... my thought was to save him the time and trouble of the hunt for money and, more importantly, the disappointment of finding out he can't buy the house AFTER going through all the trouble to finally get financed.

[KFC911]

^^^^ You hold the "cards" and could opt to sell him the house were he to come up with financing, even though he didn't give you a written notice. It's not "all" about the $$$ in my little world and I would do nothing at this point in time. "Win-win" is how I've always dealt with tennants, and I"m going to sell a couple of houses to great people this year... also leaving about $50K on the table as I walk away from both.... my choice. And I'm good with that .

I am a LOUSY business man ... and I just don't care .

Best of luck!

[LeeH]

Originally Posted by KC911

^^^^ You hold the "cards" and could opt to sell him the house were he to come up with financing, even though he didn't give you a written notice. It's not "all" about the $$$ in my little world and I would do nothing at this point in time. "Win-win" is how I've always dealt with tennants, and I"m going to sell a couple of houses to great people this year... also leaving about $50K on the table as I walk away from both.... my choice. And I'm good with that .

I am a LOUSY business man ... and I just don't care .

Best of luck!

Yeah, I was mentally prepared for it to sell all along. Why wouldn't he buy? I'd assumed for some time he'd buy, but, given an out (not even a technicality really, just a failure to perform on his part) I'd truly prefer to keep the house.

My rentals will be my retirement income. If I sell this, I'm not just losing out on the $50K, but, more importantly, the monthly income for potentially the rest of my life. A couple of years ago when we penned this deal, the idea was that if he buys it, we made a healthy profit from the rehab and we'll just go buy another. In today's market in Phoenix, finding lower priced properties is a real challenge. I can't take the $200K I'd walk away with at closing and buy another house that will net me the same monthly income. It's hard to find anything that will cashflow at all.

So... I was somewhat relieved when I saw his opportunity has expired. My only question now is whether to tell him now or later that his window of opportunity is shut.

[Seahawk]

Originally Posted by LeeH

My only question now is whether to tell him now or later that his window of opportunity is shut.

Tell him now. Bad news doesn't better with age and an excellent tenant deserves that respect.

BTW, he can trash the place at any time, regardless. My guess is that he won't.

[Arizona_928]

Especially if he can still live there. ^^^

I feel he already knows that he won't be getting the mortgage to buy it....

[MRM]

Do not under any circumstances notify him now. If you do, the best thing that could happen is nothing, and there are plenty of bad things that could happen. Option one One, he decided not to buy for whatever reason so your message means nothing to him.. Option two, contacting him spurs him into action, he finds a creative mortgage broker who agrees to find him and he presents a written demand to buy before the expiration of the option, arguing that the 60 day notice provision is either unenforceable or ambiguous. Then you either have a pissed off tenant or a potential lawsuit. By the way, that language is poor. It is not clear whether you intended to have a deadline 60 days before the option expired or if that was just the way the option got written. The wording should have been explicit that the option needed to be exercised in writing by a certain date, no modifiers to it. But anyway, there’s no reason for you to tell the other party their option expired at any time anyway. The option expired according to its own terms without you needed to put him on notice. Again, the best thing that could come from you telling the tenant that his option expired is nothing. At worst it could sound like you were reminding him of a bad experience, or worse, that you were taunting him. I know you’re not, and I know your instinct is to do something you perceive as compassionate for him. I’m just telling you it won’t work out that way. If you say nothing, everything is likely to just pass without another word between the two of you. Bringing it up could cause problems, so why do it?

[Seahawk]

^^^ I am sure you are right.

What a world we live in.

[MRM]

It's just human nature, Seahawk. No one wants to be reminded of something unpleasant. The guy probably already knows he lost out on what would have been a good deal and a situation that would have set him up for life. Reminding him he lost the opportunity just dredges up bad memories and reinforces what he lost. Let him maintain his dignity and don't discuss it.

It's like discovering something embarrassing about a friend. You both know it's true, but you just never speak of it. Reminding your friend that you know about his peccadillo but not to worry about it because you're friends would be weird. For the same reason the OP should let sleeping dogs lie and not bug his tenant. Just let it die a natural death and don't raise it with the tenant again.

[rusnak]

To answer the question, the option contract has expired. Intent has nothing to do with it. The contract was clearly written.

You can do whatever else you want, but you are no longer contractually bound. Also, if he paid an option deposit, that deposit is forfeited.

As for dealcraft, that requires a lot more information than what we have in this thread.

[Seahawk]

Originally Posted by MRM

It's just human nature, Seahawk.

Oh, I get it.

You are right, of course, but I had my rose colored glasses on today

[LeeH]

He's a 78 year old art restoration expert. I don't expect him to trash the house.

I see it both ways. Personally, I would rather be notified so I didn't spend time and energy looking for a loan that I no longer need.