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An Option to Purchase Must be from the Property Owner

If you want an option to buy a piece of property, it is a good idea to have the property owner sign the agreement. If not, you might be in for a long period of litigation, as the parties learned in Kolper Properties, Inc. v. Birroteca Management, LLC, No. 586 Sept. Term 2018 (Md. Ct. Spec. App. June 10, 2019).

David and Candace Kolper owned 1520 Clipper Road in Baltimore City, where a restaurant was located. Birroteca Management, LLC (“Birroteca”) contracted with Kolper Properties, Inc. (“KPI”), which was wholly owned and operated by David Kolper, to manage the restaurant. The management agreement included an option for Birroteca to purchase the property for $550,000 from KPI. The agreement incorrectly stated that KPI owned the property.

Birroteca attempted to exercise the option, and Mr. Kolper resisted. First, he alleged that Birroteca was in default under the agreement. Then he asked to double the management fee and to double the purchase price. After the parties did not reach an agreement, Birroteca filed an action for a declaratory judgment in the Circuit Court for Baltimore City.

The circuit court found that David Kolper misled Birroteca about the ownership of the property – amounting to fraud and negligent misrepresentation – and that KPI had breached the contract by not selling the property to Birroteca. The circuit court ordered that David and Candace Kolper sell the property to Birroteca and that they also transfer the liquor license for the restaurant. The circuit court awarded Birroteca damages in the amount of $42,619.36 for breach of contract, fraud, and negligent misrepresentation.

On appeal, the Court of Special Appeals did not disturb any of the factual findings of the circuit court. However, the appellate court vacated some of the remedies that the circuit court had ordered because it determined that the circuit court had exceeded its authority by ordering that Mrs. Kolper transfer the property and the liquor license. The record contained no basis to require her to do so. The Court of Special Appeals remanded the case to the circuit court and made clear that on remand the declaratory judgment include a statement that Mrs. Kolper is not legally obligated to sell her property to Birroteca.

The Court of Special Appeals absolved Birroteca of any responsibility for determining that Mr. and Mrs. Kolper were the owners of the property. David Kolper argued that Birroteca’s principals saw copies of the real property tax bill and of a lease for a cell tower at the site that named the Kolpers as owners. But the court did not find Mr. Kolper’s testimony credible. Instead, it focused on the misrepresentation in the management agreement that stated that KPI owned the property and concluded that Birroteca could rely on that. Curiously, it was Birroteca that redrafted the specific language that indicated clearly that the Kolpers owned the property. Birroteca revised that provision thinking it was clarifying the agreement. The court held David Kolper was responsible for the new language even though he did not draft it; he signed the agreement, so he was fully accountable for its contents.

The Court of Special Appeals anticipated that one of two scenarios could take place when the case comes before the circuit court again. If the Kolpers and Birroteca reach an agreement to sell and purchase the property on the terms set forth in the management agreement, the circuit court will consider whether Birroteca suffered any damages. On the other hand, if the parties do not reach an agreement for the Kolpers to sell the property to Birroteca, Birroteca’s damages will be calculated based on the breach of contract by KPI and the fraud and negligent misrepresentation by David Kolper.

For questions contact Ed Levin (410) 576-1900.

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Date

07.30.19

Type

Publications

Authors

Levin, Edward J.

Teams

Real Estate