7 June 2019

Who can exercise an option to purchase in a lease agreement?

In Plastre c. Lauzon (2019 QCCS 1945), the Superior Court of Quebec reaffirmed that an option to purchase is a personal right, which is not exercisable by third parties – even when found in the same document as the lease.

The facts are simple. In 2002, the Defendant entered into a commercial lease agreement with Subway, whereby Subway was granted an option to purchase the Defendant’s building. In 2003, in accordance with its rights under the lease, Subway entered into a sublease agreement with one of its franchisees. The sublease agreement was then renewed several times over the years.

Thereafter, the option to purchase was never exercised by Subway. However, the Plaintiff, who was the most recent franchisee to occupy the premises after having been assigned the rights in the sublease, expressed his intention to exercise said option to purchase.

The defendant refused to sell his building to the Plaintiff on the basis that, in his view, he had no obligation to do so under the terms of the option to purchase granted to Subway in 2002.

Following the Defendant’s refusal to sign the deed of sale, the Plaintiff instituted proceedings in passing of title against the Defendant. At trial, the Plaintiff argued that the sublease agreement, containing the terms of the lease executed in 2002, had the effect of transferring the option to purchase initially granted to Subway by virtue of its lease, to its sub-tenants.

The Court ultimately dismissed the Plaintiff’s action and, relying on the reasoning of the Court of Appeal in Attorney General of Canada v. 555 Carrière Holdings inc. (2018 QCCA 2215), wrote as follows:

[10]        La Cour d’appel confirme que l’option d’achat, même lorsqu’elle est consignée dans le même document que le bail, constitue un acte juridique différent de celui-ci. Elle confère un droit personnel, sans égard à sa publication au registre foncier. Il s’agit essentiellement d’une promesse de vente à une certaine personne, à un certain prix, durant un certain temps – un acte foncièrement unilatéral. Tel acte n’est pas opposable à un tiers envers qui le promettant-vendeur ne s’est pas engagé.

Accordingly, the Court found that there was no evidence of the option to purchase ever having been granted to any one of the franchisees, and therefore concluded that the Defendant had no obligation to sell to the Plaintiff. Despite the fact that the option to purchase was found in the same document as the terms of the lease, it remained a separate agreement conferring personal rights to Subway, which its sub-tenants, including the Plaintiff, do not benefit from.

See here

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