A recent ruling of the Corte di Appello of Milan ‒which was published last January in a real estate dispute‒ accepted the arguments the Firm had filed on behalf of the Client with regard to a purchase option. The court case arose from a provision, in a contract of sale of real estate, of a right to convey (put option), subject to a six month term. Since the will to exercise this right was manifested by its holder five years later, the judges were asked to decide on the alleged legality of such belated request and on the acceptability of any related compensation.
After having read the contracts in which the disputed contractual clause was incorporated, the Court based its decision on the interpretation in good faith of the agreements between the parties, by arguing that “in the common will of the parties, the possibility of maintaining the contractual relationships and obligations and the exercise of the option in question […], for an unlimited period is absolutely not identifiable”. Based on this, the Court held that, by reasoning in a different way without the limitation of time barriers, a contracting party would be allowed to arbitrarily exercise, even at a considerable distance of time, an option right which could have a profound impact in the legal sphere of the other contracting party. This ruling was prompted by the wording of the clause ‒which was deemed unequivocal in providing a time limit‒ and then went on to investigate the conduct of the parties which was considered incompatible with the intention to exercise the put option right of repurchase. The same half-year period provided for in the contract for the exercise of the option right ‒although not considered essential by the judges and thus not time barring‒ expressed the need to crystallize the ownership of the land, especially considering the significant economic value of the real estate transaction, for which “it was logical to expect, also from third parties involved, a final and definitive development and not an uncertain postponing”.
Therefore, in dismissing the opposing claim and releasing the Firm’s Client from any obligation to buy back the land, as well as from any claims for damages related to it, the Court considered that “an evaluation of fairness based on contractual conditions, and the lapse of five years after the six month period expired, goes beyond all reasonableness, showing a clear breach of the principles of good faith and fairness of any contractual agreement”.
In conclusion, the “put” option clause cannot be interpreted as a perpetual and temporally undetermined bond between the parties, especially when the holder ‒after its untimely usage‒ has behaved in a way contrary to the intention of using it.
(Bologna Office – Barbara Michini – 0039(0)51 2750020)
