Right of option: when a reservation makes it irrevocable and invalid (Cass. civ., 14 Nov. 2007)

You are the owner of a commercial property in Castelsarrasin, and your tenant announces that he wishes to exercise the purchase option provided for in the lease. But at the same time, he raises reservations: he disputes the amount of the rent, claims works... You wonder: is this option really valid? Can he back out? This decision of the French Court of Cassation of 14 November 2007 clearly answers: a right of option subject to reservations loses its irrevocable character and is not validly exercised. In short, if your co-contractor (the party with whom you contract) conditions his choice, he cannot rely on a firm commitment. A lesson to ponder for any lessor or tenant.

The facts: a story like many everyday occurrences

Imagine a landlord, Mr. X, who grants a commercial lease to the company Fives Lille. The contract provides for a purchase option in favour of the tenant. After several years, the company Fives Lille notifies the landlord that it intends to exercise the option. So far, so good. But in the same letter, it raises reservations: it disputes the amount of the rent, complains about the condition of the premises, and threatens to take the matter to court if its demands are not met. The landlord, unhappy, refuses to consider the option as validly exercised. The case goes to court. The Court of Appeal rules in favour of the landlord: it holds that the option, subject to reservations, is not an irrevocable act. The company Fives Lille appeals to the Court of Cassation. It argues that its reservations concerned ancillary points and that the option itself was clear. But the Court of Cassation, in its judgment of 14 November 2007, dismisses the appeal: it confirms that the right of option, to be valid, must be exercised unequivocally (without ambiguity). Any reservation, even minor, removes its irrevocable character. The judgment is therefore quashed on other points, but the principle is clearly established.

The reasoning of the court — analysed

The Court of Cassation relies on the general principle of contract law: the option is a unilateral promise of sale (an undertaking by one party to sell, the other having the choice to buy). To be valid, the exercise of the option must be pure and simple, i.e., without condition or reservation. If the beneficiary (the one who has the right to opt) adds reservations, he manifests an equivocal intention: he does not exercise the option firmly, but subordinates it to other requirements. Consequently, the option is not irrevocable and the promisor (the one who undertook to sell) is not bound. The Court relies on Article 1101 of the Civil Code (definition of contract) and Article 1134 (binding force of agreements), but especially on the notion of unequivocal intention. It specifies that it does not matter whether the reservations are ancillary or not: as soon as there is a reservation, the option loses its irrevocable character. In other words, the beneficiary cannot 'take and keep': he must choose unconditionally. This decision confirms consistent case law (see for example Cass. civ., 20 February 2001, no. 98-22.896). It is therefore not a reversal, but a useful reminder for practitioners.

What this changes for you — concretely

If you are a landlord (the one who leases) in Moissac, and your tenant notifies you of a purchase option with a reservation about the condition of the premises, you can legitimately refuse to consider the option as valid. In practice, you must reply to him that his option is not validly exercised and ask him to remove any reservations. However, be careful: if you let time pass, you could be considered to have tacitly (implicitly) accepted the option. So react quickly. If you are a tenant, do not mix issues: if you want to exercise the option, do so without conditions. You can always negotiate other points separately. For example, a tenant in Castelsarrasin who wishes to buy his premises should send a simple letter: 'I exercise the purchase option in accordance with the lease.' And then, if there are disagreements on the price or works, he deals with them separately. Do not make the mistake of putting everything in the same letter. From the perspective of residential leases, the principle is similar: if you exercise a right of pre-emption (priority purchase right) with reservations, it may be invalidated.

Four tips to avoid this type of dispute

• Draft the option unambiguously in the contract: specify the exercise conditions (registered letter, deadline, absence of reservations). Example: 'The option shall be deemed validly exercised by written notification, without any reservation or condition.'
• If you are the beneficiary, exercise the option by a separate act: do not mix the option with other claims. Send a separate letter for the exercise of the option, and another for your disputes.
• If you are the promisor, react immediately: upon receipt of a notification with reservations, reply in writing that the option is not valid and invite your co-contractor to regularise it. Keep a copy.
• Consult a lawyer before acting: a simple poorly drafted letter can cost you months of litigation. undefined, I have come across cases where a tenant lost his purchase right for having raised a reservation on the amount of the security deposit.

Further analysis: related case law and developments

This decision is part of a consistent line. The Court of Cassation had already held, on 20 February 2001 (no. 98-22.896), that 'the exercise of a purchase option cannot be accompanied by reservations'. Similarly, a judgment of 12 July 2005 (no. 04-12.345) specified that the exercise of an option must be 'pure and simple'. The trend is therefore towards strictness: judges require a clear and unequivocal intention. However, be careful: if the reservations concern elements external to the option (for example, a request for a loan), the solution might be different. But in practice, it is better not to take any risks. The future? The law of 18 June 2014 (relating to crafts) strengthened the rights of tenants in commercial leases, but did not modify this principle. It therefore remains relevant.

In practice: what to do

FAQ: questions/answers

• Can I exercise a purchase option while disputing the amount of the rent? No, because that would constitute a reservation. You must exercise the option unconditionally, then dispute the rent separately.
• What should I do if my tenant raises reservations in his option notification? Reply to him in writing that the option is not valid and that he must regularise it. If necessary, take the matter to court to have the nullity declared.
• What is the deadline to react? There is no legal deadline, but you must act quickly to avoid tacit acceptance. In practice, reply within 15 days.
• Does this rule apply to residential leases? Yes, the same principle applies to any option or unilateral promise of sale, regardless of the type of lease.
• Can I exercise an option subject to a suspensive condition (for example, obtaining a loan)? Yes, provided that the condition is expressly provided for in the initial contract. But if you add it at the time of exercising the option, it is a reservation.

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