A Rose is a Rose is a Rose

Bryant v. Cady, 445 S.W.3d 815 (Tex.App.-Texarkana 2014, no pet.).  Certain executory contracts for conveyance of Texas real estate that is used or is to be used as the purchaser’s residence or the residence of certain relatives of the purchaser are statutorily regulated.  Sellers under covered contracts must, among other things, provide to the purchaser, during January of each year during the contract’s term, an annual accounting statement with specified contents or pay liquidated damages and reasonable attorney fees. 

Bryant, Barfield and Everett sued Cady claiming to be purchasers under covered executory contracts and alleging that Cady failed to give them the required annual accounting statement regarding their respective transactions with him. In none of these three transactions was any annual statement furnished; in each case, the dispute is whether the contract is an executory contract under the statute.   The transactions in question involved three documents, a lease, a sale agreement, and a receipt.  The three transactions were structured essentially the same way, each involving a ten-year term lease of residential real estate followed by a discounted sale of the respective property to the lessee.

The three plaintiffs filed a joint declaratory judgment action, alleging that the documents signed by the parties amounted to executory contracts and that Cady had failed to provide them with the required annual accounting statements.

Seller argued that the documents were not executory contracts because the agreements to sell were not options to purchase.  For purposes of the annual accounting requirement, the Texas Property Code provides that an option to purchase real property that includes or is combined or executed concurrently with a residential lease agreement, together with the lease is considered an executory contract for conveyance of real property.  Property Code § 5.062(a)(2).    It is undisputed that the leases, being signed on the same day, were executed concurrently with the agreements to sell.  An option contract has two components, (1) an underlying contract that is not binding until accepted and (2) a covenant to hold open to the optionee the opportunity to accept.

The court held that the agreements are, in effect, options to purchase, and given that they were executed concurrently with residential leases, are executory contracts within the meaning of the statute.  Bad news for the Seller.