Poorly Drafted Lease Agreement with Option to Purchase Can Be Resolved Against the Drafter
Updated: Jul 2, 2020
This post is not a substitute for legal advice
Leasing farmland is a common practice across the United States. In some cases, the two parties may agree to a written lease with an option to purchase. An option to purchase allows the tenant the right of first refusal if the landlord decides to sell the farmland during the lease period. Disputes can sometimes arise over how broad the option is: Does it include just the farmland rented or everything owned by the landlord? If the option is unclear, courts often resolve ambiguities against the drafter. To better understand what I mean, let’s take a look at a recent court decision.
In Waterworth v. Ekman, tenant drafted a lease that included an option to purchase farmland. The tenant was renting only the tillable acres of the farmland and not the entire parcel. The landlord was forced to sell the farmland to pay for medical assistance. The landlord’s grandchildren purchased the non-tillable acres from their grandfather, and tenant exercised his option to purchase the tillable acres and claimed the option allowed him to buy the non-tillable acres as well.
The trial court and Court of Appeals of Minnesota disagreed with the tenant. Both agreed the option was limited to the acreage he rented and not the entire parcel. The lease option contained the language “this land” to describe the land covered by the option. To both courts, this language was not clear to its meaning from reading the lease.
To understand what the parties meant, the court turned to the landlord’s and tenant’s actions when entering into the lease. In looking at the landlord and tenant’s intentions at the start of the lease, the court found the two parties never discussed that the option would apply to all of the landlord’s land, just the portion being leased.
Both courts applied a rule of contract interpretation in finding that the option only applied to the property being leased. When interpreting unclear provisions of a contract, a court may interpret the unclear provisions against the drafter, the idea being the drafter had the best opportunity to clarify the document before it was signed. In this case, the tenant drafted the lease and had an opportunity to clarify that the option provision applied to the entire parcel and not just the leased acres.
How can you prevent something like that happening in your own written leases? In this case, the tenant could have clearly stated that the option covered the entire parcel, not just the leased acres. The tenant could have also discussed early on the fact that the option would cover the entire parcel to make sure both he and the landlord were on the same page. Similarly, you should always be clear in written leases on all the terms of the agreement. Have someone review the document to see if problems leap out at the reviewer.
You should also consider having a qualified attorney draft the lease agreement. Prior to drafting the lease, the attorney will discuss with you goals and specific issues the lease needs to include and situations that should be covered. This way you can have someone qualified drafting your lease and working to resolve issues, such as those in Waterworth, before they develop. While every lease will not require an attorney to draft it, as your lease becomes more complicated, you should consider it as a way to limit potentially unclear language.
For additional help in developing your written lease, University of Maryland Extension offers resources on agricultural leasing. A guidebook, sample leases, USDA rental rate data, and videos are available at http://go.umd.edu/MDAgLease.