An option to purchase is a type of agreement in which a property owner grants another person or party the option to purchase a property, without creating a legal obligation to do so.
In a recent decision of the Ontario Superior Court of Justice, a group of siblings disputed whether an option to purchase clause within their mother’s will was enforceable considering the change in circumstances since the creation of the will.
Testator and husband had farming operation, rented it to son to operate
The testator died on October 7, 2019, at the age of 95, and was predeceased by her husband. They had seven children, one of whom passed away in 2013.
At the time the testator and her husband made their wills in 1985, they had owned and operated a small farm for several years. Their farming operation did not comprise their main source of income as they were both employed off the farm as school custodians, but rather the farm operation supplemented their income through the commercial sale of farm produce and animals raised on the farm.
Beginning in about 1993, one of the testator’s sons had rented the farm parcel from the testator on an annual basis. He operated his own farm business on the parcel and subcontracted the farm work out to third parties.
Testator’s will included option for son to purchase farming operation at reduced price
In her will, the testator included a clause that provided that if the son was living at the time of her death, he would be granted the option to purchase her farming operation for $85,300. The actual value of the business was much higher than the option price.
The option to purchase was limited to a year after the testator’s death. The clause further provided that if the son did not purchase the business within the one year, it would fall within the residuary estate. The residue of the testator’s estate was to be divided equally amongst her children.
Testator’s children disagreed about interpretation and applicability of option to purchase clause
Three of the testator’s children challenged the applicability of the option to purchase clause on the grounds that the testator was not carrying on her farm business at the time of her death. They argued, therefore, that the option to purchase clause was of no effect and the business formed part of the residue of the estate to be divided amongst the surviving children.
In the alternative, the three children argued the son had not sufficiently asserted a right to acquire the farm business for the sum of $85,300 within the one-year period following the testator’s death, as required by the will.
The son contended that by virtue of renting the farm parcel to him with rent payable annually, the testator had carried on the farm business as of the date of her death. The son therefore argued he had the option to purchase the farm business for $85,300. He also took the position he had exercised his right to purchase within the one-year timeline, therefore, the estate trustees were bound to convey the farming operation to him for $85,300.
Given the dispute between the siblings, the estate trustees brought an application seeking the court’s opinion and advice on the interpretation of the option to purchase clause.
Court ruled bare rental of farmland not “carrying on” testator’s business
The main issue to be decided by the court was whether the farm business was being “carried on” at the time of the testator’s death.
The court considered the provisions of the will in the context of the circumstances that existed at the time it was made. It found the testator’s reference to “the farming business carried on by me” referred to the business she and her husband engaged in for many years prior to the creation of their wills.
The court ruled the bare rental of land, with no accompanying obligations for maintenance or repair by the son and no benefit to the testator beyond the rent, could not be construed as “carrying on” the testator’s farming operation as required by the will. As a result, the son could not exercise the option to purchase.
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