Is a Land Sale Option Agreement An Equitable Conveyance of Land ?
In Guido v. Township of Sandy, 584 Pa. 93, 880 A.2d 1220, 1225 (2005), however, our Supreme Court noted that an option agreement for the sale of land is an equitable conveyance of land, stating:
In Detwiler v. Capone we discussed the rights conferred by a lease containing a purchase option.
An option to purchase is analogous to a contract for the sale of land; it is in nature an encumbrance on the land pledged.
In such case, the optionor is a trustee of the legal title for the benefit of the purchaser qua optionee.... Equity regards the person bound to convey as having done what he should have done, i.e. made the conveyance, and treats him as trustee for the optionee.
Where an option is exercised the title of the optionee relates back to the date of the option and his interest is regarded as real estate of that time....357 Pa. 495, 55 A.2d 380, 383 (1947); see In re Powell, 385 Pa. 467, 123 A.2d 650, 654 (1956) ("An option to purchase land is a substantial interest in the land; and, when the option is exercised, the optionee's ownership reverts to the granting of the option...."); cf. Chelan County v. Wilson, 49 Wn. App. 628, 744 P.2d 1106, 1109 (1987) (noting that even where issues regarding regulatory compliance inhere in a transaction conveying land, the vendee of property has a valid and subsisting interest therein).
The Court also observed in Detwiler that "the landlord-tenant relationship between the parties ceased to exist upon verbal communication of plaintiffs' election to exercise the option and the lease was converted into a contract of sale." 55 A.2d at 384.
This ruling reflects an historic account of the legal effect of the exercise of an option to purchase, the import of which brooks no misunderstanding.
Thus, in People's Street-Railway Co. v. Spencer, 156 Pa. 85, 27 A. 113, 32 Week. Notes Cas. 506 (1893), the Court wrote:
It was held in Kerr v. Day, 14 Pa. 112 (1850), that an option to purchase is a substantial interest in land, which may be conveyed to a vendee; and the English chancery cases were reviewed by Bell, J., with the result that, 'when the lessee made his option to purchase, he was to be considered as the owner ab initio.
Indeed, the determination can only be supported by attributing to the lessee an equitable estate in the land, under his covenant for an optional purchase, which passed to his alienee, vesting him with the right to call for a specific execution on declaring his election.' and in Frick's Appeal, 101 Pa. 485 (1882), where the land was sold upon a prior judgment before payment or conveyance, it was held that the surplus was the property of the optional vendee. Id. at 114.