Properly Exercising the Right of First Refusal
It is common for commercial leases or certain real estate transactions to include a right of first refusal. The right of first refusal can be a valuable option for a party to hold and a worthy option for a party to bargain for and ultimately exercise. But, if a party exercises the right of first refusal, it does not mean that the third party that lost the transaction will be happy about it. Many times, they are not happy because it is perceived as a lost deal.
When it comes to a right of first refusal:
It is true that “[a] right of first refusal is a right to elect to take specified property at the same price and on the same terms and conditions as those continued in good faith offer by a third person if the owner manifests a willingness to accept the offer.” “One offer to purchase matches another only if the essential terms of the offers are identical.” “[W]hen the holder of a right of first refusal attempts to exercise his right but adds or deletes terms and/or conditions that render the offer different than that submitted by the third party prospective purchaser, the right of first refusal has not been properly exercised.” However, “a point-by-point recitation of the material terms of the third party contract” is not required; “it is sufficient that a party simply announce her desire to exercise her right of first refusal.” And “an attempted exercise that is silent on the terms of the acceptance clothes itself in the language of the third party offer it seeks to match.”
Acquisition Trust Company, LLC v. Laurel Pinebrook, LLC, 45 Fla. L. Weekly D767a (Fla. 2d DCA 2020) (internal quotations omitted).
In Acquisition Trust Company, the supermarket Publix was a tenant in a commercial shopping plaza. Its commercial lease included a right of first refusal. The landlord entered into negotiations to sell the property to a third party and a letter of intent was issued. The landlord then notified Publix because Publix had the right of first refusal. Publix notified the landlord that it was exercising its right of first refusal upon the same terms and conditions in the letter of intent. This terminated any agreement that the landlord had with the third party purchaser. Thereafter, Publix and the landlord negotiated different terms than the landlord had with the third party, although the purchase price remained the same.
The third party filed a lawsuit claiming the right of first refusal was not properly exercised because Publix ended up purchasing the property under different terms. The appellate court, affirming the trial court, disagreed. When Publix exercised the right of first refusal, it did so agreeing to the same terms and conditions as the third party’s deal to purchase the property. No terms and conditions were changed. It was only later, after the landlord’s deal with the third party terminated, did Publix and the landlord mutually agree to different terms. “[O]nce a ROFR [right of first refusal] is properly exercised, the resulting contract can be freely modified by mutual agreement of the parties and the third party has no standing to object.” Acquisition Trust Company, supra.
If you have a right of first refusal, make sure you properly exercise it. You bargained for it, so make sure if you need to exercise this option, you do so correctly.
Please contact David Adelstein at firstname.lastname@example.org or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.