Previous articles – COMMERCIAL LEASE OPTIONS FOR TENANT PROTECTION: PART 1 and PURCHASE OPTIONS IN COMMERCIAL LEASES – addressed various options that tenants should want to include in their lease for their protection. Such options are not limited to leases, however. Options can play a role in a variety of other transactions, such as various corporate documents, management agreements, and real estate contracts as well. Similar to how they operate in leases, the options found in these aforementioned documents and/or other contracts and documents generally grant a party a right to exercise some sort of action in the future. In addition to being drafted into a single provision in a contract, options can also be drafted in stand-alone option contracts. This article will address some other forms of options which were not addressed in the previous two articles pertaining to options that can be found in a lease.
Options in an Easement
One type of agreement in which an option can be found is an easement. What is an easement? An easement is an agreement between two parties which grants the receiving party an interest in the granting party's land.
For example, A, B, and C are all neighbors. C and A are good friends and enjoy spending time in each other's backyards. The easiest way for A to get to C's backyard would be through B's backyard. B can grant A an easement so that A can utilize B's backyard as a path to C's backyard. It should be noted that A cannot utilize B's backyard for any desired purpose; A's use of B's backyard would be limited to the purpose of the easement – in this case, as a path to C's backyard.
An option can come into play as follows: A can request that C grant a purchase option in the easement so that, if B ever desires to sell his houses, A would have the first option – either as a ROFO or a ROFR, as discussed in prior articles – to buy the house and be able to move closer to C. As a side note, there are obligations that come with being granted an easement, which will be discussed in another article.
Options in Joint Venture ("JV") Agreements
What is a joint venture agreement? A joint venture agreement, aka a JV agreement, is a form of partnership agreement that sets forth various obligations of the partners. Often, a JV is entered into when multiple people or entities want to purchase land. By entering a JV, each "buyer" of the land can clearly ascertain what rights, obligations, and interests that such party has. *Disclaimer: JV agreements can be very sophisticated and should always be looked over by an attorney prior to execution.
An option can play a role in a JV agreement as follows: A, B, and C enter into a JV agreement to purchase real property that A found. A needs B for his expertise in managing real estate, and C for his capital. It's very possible that, at some point down the line, either A B or C will want to get out of the partnership. To do so, the exiting partner will need to transfer its interests to a new person or entity. In this case, the remaining partners will likely want to be the ones to have the first chance to purchase the exiting partner's interest. This can be accomplished through options in the JV agreement.
The above further illustrates various ways in which options can play a role in various agreements. As can be seen, it is important to make sure to have proper representation when determining how to best structure your business ventures. For more information, or for help on your next real estate deal, reach out to the knowledgeable real estate attorneys at KI Legal by calling (212) 404-8644 or emailing info@kilegal.com.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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