Conditionality of Lease Purchase Options: Notice Requirement as a Condition Precedent

Introduction

In Walmart Real Estate Business Trust v. Quarterfield Partners LLC, the Fourth Circuit addressed whether purchase‐option clauses in two twenty‐year real‐estate leases granted Walmart and Sam’s Real Estate Business Trusts an unconditional right to buy the leased properties or imposed a condition precedent requiring the lessor, Quarterfield, to send specific notices before the option could arise. The underlying leases, executed in 2005 and measured from both effective dates and rent commencement dates, contained overlapping provisions granting an “Option Term” and a computation of the purchase price. Quarterfield never sent the required notices; the Trusts attempted to “waive” notice and exercise their options, prompting a dispute over contract interpretation.

Summary of the Judgment

The Fourth Circuit reversed the district court’s grant of summary judgment in favor of the Trusts. It held that, under Maryland law, the plain language of the purchase‐option provision unambiguously conditions the existence of the “Option Term” on Quarterfield’s sending two thirty‐day notices. Read as a whole, the clause creates a conditional option rather than an unconditional, continuing offer. Because Quarterfield never sent the notices, the option never ripened, and Quarterfield had no duty to convey the property or reimburse rent. The case was remanded with instructions to enter judgment for Quarterfield.

Analysis

Precedents Cited

Straley v. Osborne, 278 A.2d 64 (Md. 1971): Defines a purchase option as a continuing, irrevocable offer distinguishable from a conditional option or right of first refusal.
Diggs v. Siomporas, 237 A.2d 725 (Md. 1968): Further clarifies the features of an option contract.
Connors v. Government Employees Ins., 113 A.3d 595 (Md. 2015): Contracts must be construed in their entirety, giving effect to every clause.
Cheek v. United Healthcare, 835 A.2d 656 (Md. 2003): Defines “illusory promise” and the test for contractual bindingness.
Questar Builders v. CB Flooring, 978 A.2d 651 (Md. 2009): Establishes that discretion in contract performance is tempered by an implied covenant of good faith and fair dealing.
Maryland damages and summary‐judgment standards: Towers Watson & Co. v. Nat’l Union Fire Ins., 67 F.4th 648 (4th Cir. 2023), DENC, LLC v. Phila. Indem. Ins., 32 F.4th 38 (4th Cir. 2022).

Legal Reasoning

Under Maryland law, unambiguous contracts are enforced according to their plain language. The purchase‐option clause’s first sentence appears to grant the Trusts a right to buy during years 10–11 of the lease. However, the second sentence begins “Notwithstanding the foregoing,” and plainly states that the “Option Term shall not commence until [Quarterfield] sends … two … thirty (30) day notices.” Subsequent sentences address what happens if Quarterfield “fails to send such notice.” Reading the provision in its entirety, the Fourth Circuit concluded that the notice requirement is a clear condition precedent, and no other clause imposes an independent obligation on Quarterfield to send notice at a fixed point or at all. The district court’s focus on the first sentence violated the canon against discarding meaningful language. The Trusts’ argument that the clause would be illusory was also rejected, because Maryland courts will enforce conditions precedent and will construe discretion in light of the implied covenant of good faith.

Impact

This decision underscores the necessity for precise drafting of lease‐option provisions. Landlords and tenants must explicitly negotiate and document any notice and timing mechanisms. Sophisticated parties cannot retroactively assert an implied duty to notify or interpret a conditional clause as unconditional. Future Maryland cases—and potentially other jurisdictions—will look to this opinion when construing option clauses with notice requirements and conditions precedent.

Complex Concepts Simplified

Purchase Option: A contractual right allowing a lessee to buy the leased property at a pre‐determined formula price during a specified period.
Condition Precedent: An event or action that must occur before contractual obligations become enforceable.
Illusory Promise: A promise that appears binding but imposes no real obligation on the promisor.
Implied Covenant of Good Faith and Fair Dealing: A legal doctrine requiring parties to a contract not to undermine each other’s benefits from the agreement.

Conclusion

The Fourth Circuit’s ruling makes clear that a lease purchase option containing an explicit notice requirement is a conditional option under Maryland law. By enforcing the notice‐as‐condition‐precedent clause, the court reaffirms the primacy of holistic contract interpretation and respects the parties’ freedom to structure their agreements. The decision cautions practitioners to draft option clauses with unambiguous starter events, notice protocols, and timing constraints to avoid unintended conditionality or forfeiture of rights.