September/October 2002
Current legal trends affecting you and your business
ick offers to sell Natalia a used photo-
She says, “I definitely want to buy it but
copier for $4,000 and gives her a week to
I need my boss’s OK.” Bob says, “Good.”
think it over. Five days later, Joe offers
Nick $4,400 for the copier. Not having
heard from Natalia, Nick immediately
accepts Joe’s offer, takes his check and
gives him the copier.
While Nicole is calling her boss, Patty
comes in and offers to pay Bob $4,000
for it. Bob accepts on the spot. Patty
writes Bob a check and takes the copier.
Natalia hangs up and says, “My boss says
The next day Natalia accepts Nick’s
I can pay you $4,000 for the copier.”
offer. When told he sold it to Joe, she
Ralph says he just sold the copier to
says, “But you gave me a week to think
Patty. “But I said I definitely want to buy
about it and the week’s not up yet.”
it, and you said OK,” complains Natalia.
Natalia might shrug it off or she might
“We had a deal.”
sue Nick for breach of contract. And
chances are she’d have a good case,
because Nick never withdrew his offer
before selling to Joe.
If Nicole were to sue Bob for breach of
contract, a court would probably find
that she had no contract with Bob, and
he was free to sell the copier to anyone
Here’s another scenario. Bob wants to
else. When Nicole attached a condition,
sell his copier and shows it to Nicole.
her acceptance became a counteroffer.
1205 Franklin Ave. Suite 320
Garden City, NY 11530
100 Park Avenue
New York, NY 10016
Fax: 516.294.2758 E-mail: [email protected] Website: www.dsuttonlaw.com
These scenarios show the difficulty in
sometimes determining whether a promise,
pledge or stated intention is enforceable. A
legal contract or binding agreement can be
written or merely spoken. It can be typed
in triplicate — using terms such as
“whereas” and “hereinafter” — or it can
be hand-written on a cocktail napkin in
everyday language. It can be a single
attorney-composed document, or a series
of informal correspondence between the
parties — sent in envelopes or by e-mail.
To make an enforceable deal, you must
What makes a contract binding and
include some essential contract terms. You
enforceable? Not whether it’s in writing,
must put them in the agreement and make
not the kind of paper it’s written on, not
them specific and unambiguous. Essential
how it’s conveyed between the parties, not
terms include:
the vernacular it employs and not the
writer’s background. What makes it bind-
Identification of the parties, including
ing is whether it meets these three criteria:
names, of course — either persons or
businesses — as well as addresses and
1. It contains all the material terms — or
any other information that would
promises — each party makes to
distinguish one John Doe or Acme
the other,
Corp. from another.
2. The parties exchange — or promise to
exchange — something of value, and
Description of the goods or services
one party provides, and the compensation the other party pays.
3. It represents an offer by one party and
an acceptance by the other.
Dates, periods or conditions under
which those goods, services and pay-
If one of the parties fails to perform
ments must be provided — possibly
or deliver on its promises, a breach of
including a formal delivery or payment
contract occurs. And the law provides
schedule or both.
remedies for the injured party.
Agreement date and both parties’
We’ll take a closer look at each of the
three criteria that make a contract
Contracts involving large sums of money
enforceable, and then briefly discuss
or long-term relationships between the
what an injured party can do when faced
parties usually contain many other
with a contract breach.
provisions, such as:
Conditions for terminating the contract,
Merger clauses that extinguish previous
offer. A mansion and a $10 bill both qualify
as valuable consideration.
agreements between the parties,
But a one-sided promise is not enforceable.
Choice-of-law clauses that identify the
If your neighbor promises to water your
law (if a statute applies) or the state (or
rare prize-winning bonsai trees while you
country) whose law governs the transac-
vacation in Tahiti, you have no recourse if
tion, and in which either party would
you return to find they’ve dried up and
litigate a dispute,
died. If you had pledged to bring your
Alternative dispute resolution clauses
that can specify how the parties will
resolve disputes over contract terms —
typically mediation or arbitration,
neighbor a souvenir key chain from Tahiti
for his watering services — valuable consideration — you then might be able to
recover damages for your loss.
Limits on damages in case of a lawsuit
or liquidated damages (that is, a dollar
amount agreed to in advance and
spelled out in the contract that a violating party must pay the other party for
violating the agreement), and
Names of successors who would be
responsible for contractual obligations if
the original parties die or go bankrupt.
To enforce a contract, you must be able to
You may include many other provisions
prove that one party made an offer that
in a contract, depending on jurisdiction,
contained all the material terms and the
the transaction’s nature and your line
other party accepted the entire offer. At
of business.
some point, one party (let’s call him George)
must say, “OK, here are the terms I will
agree to — will you also agree to them?”
For a contract to be legally binding, the
parties must exchange goods, services,
If the other party — Elena — writes back
assets, money or items of value — what
and says, “Yes, George, I agree to the
lawyers call valuable consideration. But the
terms in your letter of March 1, 2002,”
quid needn’t have the same value as the
then the contract is final and legally
quo. If you agree to sell your Beverly Hills
binding, even if no single document
mansion to a friend for $10, you can’t later
contains both parties’ signatures.
claim the deal is void because the price was
inadequate — unless you were incapacitated, defrauded, coerced or a minor without parental consent when you made the
If Elena takes too long to respond, George
can revoke the offer at any time before
Elena accepts it, unless the offer specifies a
period in which it will remain open.
Although an oral contract is just as
enforceable as a written one, proving an
oral contract’s terms can be difficult if a
dispute arises. So as a rule, you should
either insist on a written contract or at
least confirm in writing an important
oral agreement.
Some contracts must be written to be
enforceable. Most states require a written
contract in these transaction types:
full, without any other communication? Is
that an acceptance? In some cases, a judge
or jury may have to decide.
After an offer is accepted, the contract binds
both parties with some exceptions. For
example, some states allow consumers a
cooling-off period — typically 24 to 72
hours — to reconsider and nullify a contract
that involves a major purchase or home
Any contract that involves a real estate
purchase, sale, long-term lease or transfer,
repairs or a contract signed in one’s home.
Any agreement involving the sale
of goods exceeding a specified
dollar amount,
Any contract whose terms can’t be
complied with or completed in less
than one year,
An agreement to lend a large sum
of money,
Elena mails George a check for payment in
A promise to pay someone’s debts, and
A contractual obligation that is likely to
extend beyond either party’s lifetime.
Any party failing to live up to the bargain
breaches the contract. Besides failing to
perform as promised, a breach occurs if
either party makes it impossible for the
other party to perform.
If the contract doesn’t spell out remedies,
the law provides remedies for the injured
party. Here are the two most common:
Compensatory damages. The injured
On the other hand, George may choose
party can recover the money it would
to leave it open indefinitely. In that case,
have gained or saved had the other
it remains open until Elena accepts,
party fulfilled the contract, and the
rejects or makes a counteroffer. But you
court may award the plaintiff legal fees,
can’t assume the offer will remain open
court costs and punitive damages.
forever — just a reasonable time. As you
Specific performance. Less common,
might expect, what’s reasonable depends on
and used mostly in real estate transac-
each case’s circumstances and has been the
tions, a court may order the breaching
subject of countless lawsuits.
party to perform as promised.
Likewise, the question of what constitutes
a valid offer and clear acceptance can
Before signing any contract, read it
become quite complex. For example, let’s
carefully and ask your attorney to review
say Elena tells George, “OK, that sounds
it. Because we know the ins and outs of
good.” Is that an acceptance? Or what if
contract law, we can probably help you
negotiate more favorable terms.
ou find the perfect building in the ideal
location, but you lack enough cash for the
down payment. A short-term lease with
an option to buy might solve your problem. It will let you occupy the building,
accumulate cash for a down payment and
determine the property’s true condition
before you ultimately commit to it.
By charging above-market rent, a landlord
also can benefit from a lease with an option
By offering a tenant an option to buy, a
to buy. And the option usually attracts ten-
landlord is really doing a tenant a favor, for
ants who take good care of a property —
two reasons:
because they hope to eventually own it.
1. An option gives a tenant first “dibs” on
But negotiating a lease with an option to
the property, keeping all other potential
buy is not as simple as tacking on an extra
buyers at bay until the lease expires, and
clause. Often you must renegotiate many of
the basic lease terms as well. Here are the
2. An option essentially freezes a purchase
elements of a solid lease-with-option agree-
price for a specified time, during which
ment and a few tips on getting a good deal.
the property’s value may appreciate.
A lease with an option to buy is also called
a lease-option. It comprises all the usual
terms of a commercial lease — including a
fixed time period, monthly rent payments,
permitted tenant uses and landlord obliga-
In return for this favor, and the fact that
part of the rent applies to the purchase
price, a tenant typically must either pay
rent that is 10% to 20% above market rate
or pay a one-time option fee on signing
the lease — or both.
tions to maintain the property. In addition,
In addition to lease terms, a lease-option
it gives a tenant the exclusive right — but
agreement should include all material
no obligation — to buy the property at a
purchase terms, including:
fixed price at any time during the lease
term. And it usually specifies that a tenant
Purchase price. This should reflect
can apply a percentage of rent paid to the
current fair market value.
purchase price. The option period needn’t
Rent credits. This defines how much
last for the full lease term.
of a tenant’s aggregate rent payments
applies to the purchase price. (It’s
typically between 10% and 100%, with
33% being fairly common.) The higher
the credit, the more likely the option
will be exercised. A tenant usually forfeits rent credits when an unexercised
option expires.
Option consideration. This is a nonrefundable fee or deposit that a tenant
pays for the privilege of inserting an
option into a lease agreement. Most
lease-option agreements provide that
deposits apply to the purchase price if
tenants exercise options but is forfeited
if they don’t.
items (such as earnest money, closing costs
and inspections) before the lease term
starts. You can attach a sales-agreement
form to the lease-option agreement.
Term length. Of course, a tenant wants
a long lease so that property value has a
chance to rise (while the purchase price
Before you sign a lease-option agreement,
is fixed). Conversely, a landlord may
get your lender’s assurance that the agree-
want to limit the term to one or two
ment’s terms are acceptable, and try to get
years. But agreements can be reached.
preapproved financing to exercise the
For example, a tenant may negotiate a
option. Keep in mind that interest rates
longer term in return for accepting
can move up or down before the option
smaller rent credits.
expires — so don’t bank on the property’s
Exercise period. In some cases, a land-
value appreciating.
lord may want to restrict the time during which a tenant may exercise an
option to buy. Usually a tenant’s best
interest is to lengthen the exercise
period as much as possible.
Remember, real estate agents’ full
commissions normally aren’t paid until
an option is exercised. Thus agents tend
to be biased toward shorter terms and
earlier exercise periods.
A lease-option agreement should also specify the sales agreement form to be used, so
that the parties agree on all other sale
With so many variables, a lease-option
agreement can get complicated. But the
Negotiating a lease
with an option to buy is
not as simple as tacking
on an extra clause.
upside is that it gives you the flexibility to
structure a deal that lets you buy property
tomorrow that you may not be able or
willing to buy today. Be sure to meet with
legal and financial advisors before you
begin the negotiating process.
IN BRIEF . . .
All general across-the-board pay raises
If you have Spanish-speaking workers, the
granted while they were gone,
IRS has just the thing for you: a notice in
Spanish you can post in your workplace to
inform Spanish speakers of the new saver’s
credit available this year. (The credit is for
retirement-plan contributions by lowerincome workers.) The notice, Announcement 2001-106, is on the IRS’s Web site:
www.irs.gov. An English version,
Announcement 2001-106 (IRB 2001-44),
is also available there.
If health benefits would otherwise terminate when they left, the opportunity
to elect continuing health benefits for
up to 18 months after their absences
began (or for the period of service,
whichever is shorter) for premiums not
exceeding 102% of full premiums, and
reinstatement of coverage without waiting periods or preexisting-conditions
exclusions on their return, other than
any that would have applied without the
Employers can’t dock the pay of exempt
employees who come to work late or leave
absence, and
Some pension benefits.
early. To preserve the exemption from
But you don’t have to reemploy a worker if
overtime, employers must pay exempt
you can prove that:
employees a predetermined salary not
subject to reduction based on the quality
Under your company’s current situa-
or quantity of work performed. Partial-
tion, re-employment now is impossible
day docking is forbidden under all circum-
or unreasonable, such as you have
stances. For more on how to comply
closed a plant where an employee
with the Fair Labor Standards Act,
formerly worked,
consult your attorney.
The initial employment was for a brief,
nonrecurring period not reasonably
expected to continue indefinitely or
Have some of your employees been called
to active military service, inactive duty
training or full-time National Guard duty?
If so, do you know what your obligations
are under the Uniformed Services Employment & Re-employment Rights Act? In a
nutshell, if honorably discharged service
members, reservists and National Guard
members notify you of service and apply
for re-employment, you are required to
give them their old jobs back, plus:
example, if you hired extra workers
for a significant period, such as, for
only for the holiday shopping rush, or
The employee was disabled during
service and is no longer qualified to
resume his or her previous job even with
reasonable accommodation, and additional training or effort would impose
undue hardship on your company.
For more specific information, call us.
This publication is distributed with the understanding that the author, publisher and distributor are not rendering legal, accounting, or other
professional advice or opinions on specific facts or matters, and, accordingly, assume no liability whatsoever in connection with its use.
September/October 2002
In this issue . . .
What Makes A Contract Enforceable?
Rent With an Option To Buy
Potential Advantages for Both Buyers and Sellers
Current legal trends affecting you and your business
In Brief . . .
David J. Sutton has been representing clients in business and personal matters
for more than 20 years. He is admitted to practice law in New York federal
and state courts. He holds a BA magna cum laude from the University of
Massachusetts, a JD from Hofstra Law School, and a diploma in Advance
Trial Advocacy from the National Institute of Trial Advocacy. David’s areas
of concentration are commercial litigation, construction law, personal injury
law, insurance law, environmental law and white-collar criminal law.
Our Commitment to All Clients
You will be treated with courtesy and consideration at all times by
our lawyers and staff.
David A. Blansky (Associate) David received his Bachelor’s Degree in Communications, Legal Institutions, Economics and Government from The American University in Washington, D.C., in 1994 and his Juris doctorate Degree
from the Northeastern University School of Law in Boston, Massachusetts in
1997. David has extensive litigation experience having served in the Office of
the Nassau County District Attorney for nearly four years where he prosecuted both petty and felony crimes during his distinguished career. Before
becoming a prosecutor, David served as a senior law clerk at the Department
of Justice and worked at National Public Radio - Office of General Counsel.
David is admitted to practice before all New York State Courts as well as the
Federal Courts for the Southern and Eastern Districts of New York.
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Larry J. Bonchonsky (Of Counsel) is a seasoned medical malpractice and personal injury trial attorney in high profile litigation. He has successfully tried
numerous multimillion dollar cases for some of New York’s most prestigious
firms. With 20 years of experience, Larry’s areas of concentration are in representing serious personal injury victims involved in physician and hospital
malpractice or in various kinds of accidents. He is a graduate of SUNY at
Albany and the Columbus School of Law at the Catholic University of America. He is admitted to practice in New York and Washington, D.C.
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David S. Feather (Of Counsel) has extensive experience in employment law,
with emphasis on workplace discrimination, and is co-author of Employment
Discrimination Law, Third Edition. He is experienced in all phases of drafting
and negotiating employment contracts, severance agreements and non-compete agreements. A graduate of SUNY Binghamton and Hofstra Law School,
David is a member of the Legal Advisory Committee for the Association of
American University Women.
Daniel J. Osojnak (Of Counsel) has extensive experience in negotiating business and real estate sales. His practice areas include mergers and acquisitions,
commercial leasing transactions, finance transactions, business startups, partnership and shareholder agreements, licensing agreements, joint venture
transactions and securities law. He has a BA in accounting from Queens College and a JD with distinction from Hofstra Law School.
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origin or disability.
Our Guarantee: If you are not satisfied with how your matter is being handled, you have the right to withdraw from the attorney-client relationship at
any time (court approval may be required in some matters, and your attorney may have a claim against you for the value of services rendered to you up
to the point of discharge).
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