Real Estate Options and the Doctrine of Equitable Conversion

Under what is known as the doctrine of equitable conversion, once a real estate purchase agreement is signed by all parties and becomes effective, the buyer becomes the equitable owner and the seller retains bare legal title to the property under agreement. However, under a real estate option, the equitable conversion does not occur until after the option is exercised and not when the real estate option agreement is signed by all parties and becomes effective. This is because there is no legal obligation to buy and sell until after a real estate option is exercised. After a real estate option is exercised, the optionee-buyer retains equitable ownership of the property.

The difference between a real estate option agreement and a standard purchase agreement is that there is no contractual obligation to purchase the property. For example, when a buyer and seller sign a purchase agreement, they become legally obligated to buy and sell the property under contract, and either party can be sued if he or she fails to do so. However, when an optionee and op-tionor sign a real estate option agreement, the optionee has no contractual obligation to purchase the property under option. An optionee can let a real estate option expire, and an optionor has no legal recourse against the optionee.

0 0

Post a comment