Commercial Lease Options to Purchase and Specific Performance Under New Hampshire Law

A landlord may regret giving a tenant the option to purchase the premises he or she leases, but dodging and weaving will not shake a ready, willing and able tenant/buyer.  A recent New Hampshire Supreme Court order shows how quickly a landlord’s second thoughts can unravel when delay, silence, and after-the-fact objections replace straightforward performance of the bargain.

Background

Mahmoud Chatila (tenant) and Charles Smith, III (landlord) entered into a written commercial lease on February 20, 2017, for property in Derry, New Hampshire. The lease ran for a four-year term ending March 1, 2021, at a monthly rent of $3,750. The lease included the following option to purchase clause:

The LESSEE may exercise the option to buy the property at any time during this term of the lease or immediately upon the termination of the lease.  The agreed upon price of the option is $350,000 less the 50% taxes paid during the first year and any extra payments made during the four year lease term.

On November 10, 2020, Chatila, through counsel, notified Smith’s counsel of his intent to exercise the purchase option. That same day, Chatila’s prospective lender advised that a signed purchase and sale agreement was required to secure financing. On November 16, 2020, Smith’s counsel confirmed that Smith had no objection to proceeding and requested a draft purchase and sale agreement. Chatila provided a draft on December 22, 2020, and followed up repeatedly in January and February 2021.

After the lease expired on March 1, 2021, Chatila continued to pay rent. Throughout February and March 2021, Chatila’s counsel sent repeated inquiries seeking progress on the purchase and sale agreement. In April 2021, Smith’s counsel sent a revised draft, and Chatila promptly responded with proposed revisions. In June 2021, Smith’s counsel initially stated that Smith would sign, but later withdrew that assurance.

In July and August 2021, Chatila again sought to move the transaction forward. In August, Smith’s counsel claimed that Chatila told Smith he could no longer purchase the property due to a large tuition payment. Chatila’s counsel immediately rejected that assertion and confirmed Chatila’s intent to proceed. Smith did not respond again until January 3, 2022.

From January through August 2022, the parties engaged in sporadic negotiations. Smith repeatedly failed to respond for weeks or months. Disputes arose over the removal of Smith’s personal property from the premises. On July 15, 2022, Chatila informed Smith that he had sufficient funds and wished to proceed with a cash purchase. Smith still did not cooperate in finalizing terms or scheduling a closing. At no point did Smith demand immediate tender of the purchase price, assert that the option had expired, or declare Chatila in default.

Superior Court – Option Enforced

On September 27, 2022, Chatila filed suit in the superior court for breach of contract, seeking specific performance of the purchase option and restitution for rent paid after exercising the option. In April 2023, Chatila moved for summary judgment. He argued that Smith intentionally delayed the transaction in bad faith and breached the agreement.

Smith argued that Chatila failed to prove he was ready, willing, and able to purchase the property because financing required contingencies. The superior court granted summary judgment for Chatila. The court ruled that Chatila’s readiness and ability to purchase did not present a genuine issue of material fact. It concluded that any alleged lease defaults were immaterial because the lease remained valid and the purchase option was never rescinded. The court ordered specific performance, required conveyance within thirty days at a price of $344,150, and awarded restitution for rent paid after the attempted exercise of the option, less a reasonable three-month period to arrange financing and closing.

Supreme Court Agrees

On appeal, Smith raised several issues. He argued that a) Chatila was not ready, willing, and able to purchase and was in material breach of the lease and b) specific performance was unavailable because Chatila did not complete the purchase immediately after the lease expired. He also challenged the finding that Smith delayed negotiations to collect rent. Finally, he argued the agreement did not constitute a valid contract for sale and that the trial court imposed terms not found in the lease.

The Supreme Court rejected each argument. It held that no evidence showed Chatila received notice of default or that the purchase option was rescinded. It ruled that Chatila satisfied the ready, willing, and able requirement by repeatedly representing his ability to purchase, including an offer to pay cash. It concluded that Smith’s delays and non-responsiveness undermined his arguments. The Court held that the record overwhelmingly supported the existence of a valid lease and purchase option and supported the finding that Smith delayed negotiations. It further held that ordering specific performance and restitution fell within the trial court’s equitable discretion and did not constitute an unsustainable exercise of that discretion.

Chatila v. Smith, No. 2024-0019 (N.H. Mar. 14, 2025) (order). (Because the Court issued an “order” rather than an “opinion,” the ruling has no precedential authority over other cases, but it may provide guidance on how New Hampshire courts may approach similar issues in the future.)

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