Help! Time sensitive contractual legal mess
Last year I purchased my first piece of commercial real estate. I was very excited to start getting some monthly passive income, however long story short, the whole deal was a sham and I was left with a building generating no money, squatters, a myriad of different maintenance issues, and very expensive fixed and variable costs.
I decided to try and cut my losses and sell the building at a discount to someone who was better equip to make money on it. I found an investor who for the sake of this I will call "Charles".
Charles has been leasing the building from me for about a year and during this time he has been paying my mortgage, taxes, insurance, as well, he has been paying a monthly "rent" amount directly to me in the amount of $500. In addition to all of that, as Charles has been leasing the building to tenants and collecting money, he and his investment group have been performing repairs in order to get the building in good working order so he can secure a commercial loan on the property.
The initial lease option was for 6 months and he has asked for 2-3 extensions in this time to secure the loan he needed. We have finally come to what seems like the end and he has decided to exercise his option to purchase. Everything is complete and we are set to close this week. I received the closing docs via email from the title company, reviewed them and they looked fine to me. I am set to receive a nominal amount of roughly $1,500 at closing. I had the documents signed under the supervision of a notary and they were sent to the title company.
Monday evening, 5 days after signing and mailing the closing documents, i get an email from the title company (with Charles cc'ed) claiming that Charles is stating that he should be getting a credit of $24,000 (purchase price is $240,000) at closing for the monthly mortgage he has been paying as well as a reimbursement for rent. To say i was shocked would be an understatement. This was and is in no way what was discussed from the initial conversations to sell him the building until right now. This seems to me a case of him trying to "pull the wool over my eyes" and take advantage of me. That being said there is some unique language in the contract. Here are his points.
Charles' viewpoint:
I should start by saying that Charles is an experienced real estate investor, owns multiple properties, as well as businesses within the Real Estate Industry as well as property management side of things.
Here are the references taken from the option agreement Charles is using to support his claim. I should add that Charles' attorney made these documents and then my attorney (That i had never worked with until this instance) reviewed the documents at the beginning of all of this.
Section 1 "Definitions"
(a) "Additional Rent" shall mean the total sum taxes, insurance and mortgage payment paid on a monthly basis under the Lease.
(i) "Monthly Payment" shall mean the sum of Rent and Additional Rent paid under the Lease.
(k) “On-Time Monthly Payment” shall mean Seller received the Monthly Payment on or before 5:00 P.M. on the 15th day of each month.
4. PAYMENT OF OPTION FEE: Buyer agrees to pay Seller installments towards the Option Fee as follows:
(a) $2,400 on or prior to the Execution Date to be held in trust with the Seller; and
(b) $7,600 within 60 days of the Execution Date to be held in trust with the Escrow Agent; and
(c) The total sum of all On Time Monthly Payment. Buyer shall receive no credit toward the Option Fee for a Late Monthly Payment. (This is what adds up to $24,000 over the coarse of a year).
My rebuttals to Charles' claims:
1. Section 1. l of the option agreement states
"Option fee shall mean the total sum of the funds placed into escrow on the execution date"
I want to highlight the words "on the execution date". These funds were clearly paid over time and not of the execution date of the contract which was on January 29th, 2019. The only funds paid at execution were made to me directly in the amount of $2,400. Which as I would define based on the verbiage of the contract the "option fee".
2. Section 4.b of the contract states that
"PAYMENT OF OPTION FEE: Buyer agrees to pay Seller installments towards the Option Fee as follows:
(b) $7,600.00 within 60 days of the Execution Date to be held in trust with the Escrow Agent;"
Charles' in fact deposited the earnest money in trust with the title company on September 19th, 2019. Well after the agreed upon 60 day period. Which i believe makes the contract voidable?
3. Section 4.c of the contract states (This is in my opinion where verbiage gets quite confusing and misleading based on the rest of the document"
"PAYMENT OF OPTION FEE: Buyer agrees to pay Seller installments towards the Option Fee as follows
" (c) the sum of all On Time Monthly Payment. Buyer shall receive no credit toward the option fee for a late monthly payment."
Charles was paying the mortgage directly to my lender, however he was paying me the monthly rent directly in which he was late paying me at least 3 different months. As well, he acknowledges the payments being late. This can be interpreted that not only do i not owe Charles the $24,000 he is asking for but also the remaining option fee now in escrow.
What are your thoughts? Those with a law degrees and those without one?
My guess we will not be able to close this week because the sheer dollar amount in how far apart we are. Thus, according to the contract he would have the right to sue me.
I have SO many questions. My attorney is reviewing things and I hope to hear back from him soon but i feel like it is also a good idea to have other inputs as well. One big question i have is if legal action is taken by Charles (assuming it takes months or longer for court dates etc) should i try and take back over the building to sell it in the meantime or does that make things worse (assuming he will sue for specific performance)? I assume i would now go back to paying the mortgage and since i am not making money on the building I would like to try and sell it as soon as possible.
Another thing to add is that technically we don't have a lease agreement after this Friday. He has "his" tenants in my building paying him. Am i now entitled to the rent monies? Do the leases need to be redone in my name?
I have a headache just thinking of all the what-if questions.