Can a tenant avoid rent after exercising a purchase option? J-M Manufacturing v. PWE Explained

The Utah Court of Appeals addressed an important question about rent obligations when a tenant exercises a purchase option in J-M Manufacturing v. PWE. The case involved a 20-year lease where the tenant exercised its option to buy the properties but disputes arose over both the purchase price and ongoing rent payments.

Background and facts: J-M Manufacturing leased four properties from PWE under a 20-year lease containing a purchase option. When J-M exercised the option in April 2021, the parties disagreed about the purchase price calculation. J-M stopped paying rent in December 2021, arguing it had become a “buyer in possession” with no further rent obligations. The appraisers eventually agreed on a $53.5 million purchase price, but closing was delayed until November 2023 due to litigation.

Key legal issues: The court addressed two primary questions: (1) whether J-M remained obligated to pay rent after exercising its purchase option, and (2) which lease provision governed PWE’s attorney fees claim. The case required interpretation of the buyer-in-possession doctrine and specific lease language about rent continuation.

Court’s analysis and holding: The court held that while the buyer-in-possession doctrine normally terminates rent obligations when a purchase option is exercised, parties can contract around this rule. Here, Paragraph 20(c) of the lease specifically provided that rent would “continue” if closing was delayed more than 180 days after the scheduled purchase date. However, the court found J-M was entitled to a 180-day suspension period before rent obligations resumed. On attorney fees, the court found the lease ambiguous between competing provisions and reversed for further proceedings.

Practice implications: This decision demonstrates the importance of precise drafting in commercial leases with purchase options. Practitioners should clearly specify rent obligations during transition periods and avoid ambiguous attorney fees provisions. The case also shows courts will enforce express contractual modifications to common law doctrines like buyer-in-possession when the language is sufficiently clear.