Optional Extra: Court held exercise of Option to Purchase not done properly

Will making is sometimes pretty complex work. The plan will always be unique to a person’s wishes and the personal circumstances.  Every so often, I receive instructions from clients to include an ‘option’ for one of their family or friends to purchase their property. Usually, this is because they’re trying to balance at least two things: the equality among their intended beneficiaries and the wish for someone to receive a certain property.

One of the things that can be difficult with options to purchase properties is the way in which the clause that grants that option is crafted.  Does it contemplate how long that person has to say “Yes, I want to buy!”? Is that time reasonable? What should the purchase price be? If they don’t exercise the option to buy, then what happens after that?

A recent case of Cranitch v Cranitch & Ors [2019] QSC 42 brought this issue back to my mind again and I thought to write about this brief and succinct case as an opportunity to highlight how easily an option can be problematic.

In Cranitch, a declaration was sought from the Supreme Court of Queensland in relation to a grant of an option to purchase real property of the estate and there were two central questions to answer:

  1. Did the person exercise the option in time?
  2. Did the person exercise the option properly?

The deceased passed on 9 September 2018.  The deceased had 10 children, two of which she appointed as executors; her daughter and son. The son had sadly predeceased his mother and the daughter was then the sole surviving executor.   The estate was primarily made up of a property at Bardon which was the subject of the issue before the Court.

The Will of the deceased provided as follows:

“I direct my executors and trustees as soon as possible after my death to offer an option to purchase my freehold property situated at …… to my daughter …… at a price to be determined by my trustees at their absolute discretion in consultation with two real estate agents who shall provide a written market appraisal of the value of the property at the time of my death and I further direct that my said daughter shall be required to notify my trustees in writing whether or not she accepts such option within a period of two (2) months after such option is communicated to her and I declare that the decision of my trustees with respect to the purchase price shall be final and binding on all persons beneficially interested under this my Will and I further direct that the said Option to Purchase shall b personal to my said daughter and shall not be assignable or transmissible to her executors or administrators for the benefit of her estate and I further direct that the said option shall be exercisable in respect of the said property as a whole.”

(property and beneficiary details omitted)

The executor daughter was also the beneficiary of the Option to Purchase mentioned above.

The daughter sought real estate agents to provide market appraisals of the value of the property with the last of the two appraisals being received on 26 November 2018. The value was determined to be between $675,000-$720,000.  On 28 November 2018, the daughter then purported to give herself written notice (as required under the clause in the Will) of her exercise of the option and provided the following terms of the proposed purchase:

  • Purchase Price $675,000
  • Deposit $1,000
  • Settlement Date: 28/2/2019
  • Conditions: 14-day finance.

On 4 December 2018, as executor and seller of the property, the daughter entered into a contract with herself (as the proposed buyer) on these terms with a fairly standard 14-day finance period contract condition.

If the option to purchase was not exercised, the house then fell into the rest and residue of the estate.

Firstly, the Court considered when the option period started and expired to determine whether the daughter exercised the option in time.  Looking at the construction of the clause in the Will, the Court found that the daughters option period commenced when the last of the two appraisals (28 November 2018) as the clause contemplated that the two appraisals were necessary to determine a proper price for the property.  Therefore, the Court found that the daughter was ‘clearly’ in time to exercise the option (para [31])

Secondly, the Court considered whether the option was exercised correctly.

The Court determined that the option was not exercised properly. The Court said that the clause in the Will did not contemplate that the option could be conditional upon approval of finance. In fact, the Court further states that “clause 6 strongly suggest to the contrary” (para [36]).

In reaching that decision, the Court said, at paras [37] and [38]:

“The executors are to act “as soon as possible”.  Catherine is to have two months to decide.  Clearly, Margaret’s intention was that upon the expiry of the two months, the executors would be free to administer the estate free of the option. A conditional acceptance could extend that date presumably by whatever period Catherine determined was appropriate for her to apply for and obtain finance. That is not what was contemplated.

The contract is now unconditional, but that doesn’t matter for two reasons. Firstly, the will on its proper construction put Catherine to her election; a one off opportunity to accept the option and it does not contemplate Catherine having a right to make different decisions over that two month period.  The conditional acceptance as in reality a counter offer. She did not unconditionally accept the option and has therefore lost the right. Secondly, even if it could be said that the option was validly exercised when the contract became unconditional as to finance, there is no evidence that occurred before 28 January, being two months from the latest date that Catherine could have set on the price.”

This case is a particularly valuable reminder that we need to think beyond the intention and consider its practicality in real life when we’re talking about estate planning.  I acknowledge that sometimes people want to “keep it simple”, but I must say that a simple intention can be frustrated or even rendered void without a few more detailed questions being considered and, where necessary, comprehensive conversations about how this will all work. Wills are riddled with complexities that are unseen to the non-lawyers of the world and unfortunately where there are two (or more) interpretations available of a clause in a Will and two (or more) people stand to gain different things depending on that interpretation, it can and often does result in disputes and costly litigation.

You can read the case here.

2 Comments Add yours

  1. caitebrewer says:

    Reblogged this on .

    Like

  2. caitebrewer says:

    I wonder if the executor’s solicitor drew the contract and if so, whether there will be a claim against them?

    Like

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