Month-to-Month Tenant Exercises Purchase Option: Did Option Survive End of Original Lease Term?

This was originally posted on the SGR Blog.

A lease term ends but the tenant nevertheless remains in possession. The tenant becomes a month-to-month “holdover” tenant on the same terms as the lease that ended. But what if the lease that was concluded contained an option to purchase the premises? Was the exercise of that option legally enforceable by the holdover/tenant?

Valeria McMillan and Roderick Francis (tenants) sued Christoper Marengo for specific performance of a purchase option contained in a lease for real property. They entered into a lease with Jack Colbert dated October 26, 2012, for property located in Bronx County, to be used as a residence and home-based business. The lease contained a purchase option. The option clause provided, in part:

This Option may be exercised at any time prior to the end of the term of the Lease. Upon expiration of the Option, the Landlord will be released from all obligations to sell the Premises to the Tenant. If the Tenant does not exercise the Option prior to its expiration, all rents and other charges paid under this lease will be retained by the Landlord, and neither party will have any further rights or claims against each other concerning the Option.

Tenants alleged that, on September 23, 2019, Jack Colbert died, and they exercised their option to purchase on September 30, 2019. But admitted that, at the time of the exercise, they had been holdover tenants in possession on a month-to-month basis.

The determinative issue was whether the tenants had the right to exercise the option to purchase during that time when the tenant was holding over as a month-to-month tenant?

Stated succinctly, the general rule is that an option to purchase contained in a lease is unless expressly reaffirmed in a subsequent lease or extension thereof, only valid during the term of the original lease.

Here, the purported exercise of the option did not occur during the original lease term, or during the term of a renewal option contained in the original lease. Rather, the tenants were merely holding over as month-to-month tenants. Generally, when a tenant remains in possession of the leased premises after the expiration of a lease, pursuant to common law, there is implied a continuation of the tenancy on the same terms and subject to the same covenants as those contained in the original instrument.

The fact that the lease continued generally on the same terms and conditions where there was a holding over did not mean that every condition of the lease was extended. Thus, for example, a mere holdover tenancy could not operate, in and of itself, to extend a personal guarantee in the absence of such provision in the guaranty.

In this case, tenants were undisputed holdover tenants. Assuming that they held the premises on the same terms and conditions of the original lease, they nevertheless had no right to exercise an expired option to purchase. The lease specifically provided that the option must be “exercised at any time prior to the end of the term of the Lease.” There was no provision that the option to purchase could be extended beyond the expiration of the original lease term.

The Court found that the tenants had no right to exercise the option under the undisputed facts. Their complaint was dismissed.

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