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Or Was That an Agreement to Agree to Agree?<
by Ron Davis

A portion of a Montana shopping center will apparently soon belong to a tenant despite efforts by the center's owner disputing any ownership change.

The shopping center, located in Bozeman, is owned by two partners, who lease the disputed portion of the shopping center to the tenant for the operation of a Wendy's fast-food restaurant. As part of that lease agreement, however, the tenant had obtained an option to purchase the land that is the site of the restaurant. And at the appropriate time, the tenant decided to exercise that option.

Evidently, the shopping center owners hadn't anticipated such intentions by the tenant. And they refused to allow the sale, arguing that the option was not legally binding.

They pointed out that the terms of the option were so ambiguous that they amounted to no more than "an agreement to agree." Therefore, they added, a new contract between the two parties is needed before the option can be exercised.

But the option terms did spell out such details as property appraisals (and a price based on those appraisals), the tenant's payment terms and financing arrangements, and the procedure to follow in case of default in payment. The tenant therefore contended that the option language was legitimate and enforceable.

And the Montana Supreme Court agreed with the tenant, ruling, "As the tenant argues, the option provision in the lease explicitly provides for the payment of both principal and interest over a 10-year period.... The option clause also sets forth the time in which the option is exercisable, the method of calculating the purchase price and the interest rate, the method by which the purchase price shall be paid, and the parties' rights on default.... In sum, the record establishes that the option in legally enforceable and that the tenant satisfied the terms and conditions of the option." (McDonald v. Cosman, 6 P.3d 956 [Mont. 2000])

Decision: May 2000
Published: September 2000



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