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ONCE THE PLAINTIFFS-TENANTS PROPERLY SOUGHT TO EXERCISE THEIR OPTION TO PURCHASE, THE LANDLORD, WHO IMPROPERLY REFUSED TO HONOR THE OPTION, NO LONGER HAD A RIGHT TO USE AND OCCUPANCY PAYMENTS (SECOND DEPT).

The Second Department, reversing Supreme Court, determined plaintiffs’ cause of action for return of the rent paid to defendant after the plaintiffs exercised their option to purchase the property should have been granted. Plaintiffs were defendant landlord’s tenants. Plaintiffs sought to exercise an option to purchase the property which was in the lease. Once the plaintiffs properly exercised the option to purchase, the landlord, who refused to honor the option, could no longer seek payment for plaintiffs’ use and occupancy:

… “[I]t is well settled that the legal owner of real property is not entitled to an award for use and occupancy from a contract vendee in possession unless there also exists a landlord-tenant relationship between the parties” … . Under the merger doctrine, “execution of a contract of sale [for real property] between landlord and tenant serves to merge the landlord-tenant relationship into the vendor-vendee relationship and thus effectively terminates the former, unless the parties clearly intend the contrary result” … . “An intention to deviate from the general rule and to avoid a merger may be directly expressed in the agreement or may be inferred from a medley of factors such as the terms of the agreement, the circumstances of its making, and the subsequent behavior of the parties” … .

Here … the parties did not express an intention to deviate from the general rule or to avoid a merger upon the exercise of the purchase option. To the contrary, the terms of the rider provided, in relevant part, that “[i]n the event that Tenant decides not to exercise its option to purchase, all provisions herein remain in full force and effect and Tenant remains liable for all payments hereunder, including but not limited to rent” … . Since the plaintiffs validly exercised their option to purchase on July 21, 2015, and became a contract vendee in possession, it follows that the landlord-tenant relationship terminated on that date by application of the merger doctrine … . Blackburn Food Corp. v Ardi, Inc., 2020 NY Slip Op 07850, Second Dept 12-23-20

 

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