Rights Of First Refusal Transmogrify Into Purchase Options

Print

Rights of first refusal create difficult situations. For that reason, knowing landlords resist granting them. Unknowing ones don’t know not to resist. Then again, “resist” doesn’t mean never. So, like it or not, there are plenty of leases with such a provision.

We’ve written about rights of first refusal and alternatives to such provisions. If you’d like to get on the same page as those who have seen what we’ve written in prior blog postings, click: HERE and HERE.

A few weeks ago, we came across a case that gives a pretty good explanation about what a first of right refusal is and what it becomes. But, we’re getting ahead of ourselves. First, here’s the story.

A landlord owned two adjacent parcels. One was tenanted by a quick service restaurant, the other by a discount store. The quick service restaurant had the earlier lease and that lease gave it a right of first refusal to purchase both parcels. The later (in time) discount store lease had a purchase option (not a right of refusal). The option was exercisable during the last two years of the lease term, but was expressly subject to the right of first refusal in the quick service restaurant’s lease. Got it so far? [Read more…]

Print

HUGE SALE: $20,000,000 Property For Only $300,000. Read All About It

Print

What does an owner-landlord do when a tenant has a $300,000 purchase option for a property worth more than 20 million dollars? That question could be the end of today’s posting if we treated that as a rhetorical question. Other bloggers might do that, but not the erstwhile Ruminator.

When the spread is over 20 million dollars, legal costs mean little. For students of the “expected value” approach, the breakeven point for a 1% chance of picking up those millions is $200,000. If you think there is a 5% chance, then spending a million dollars is fair value for such a lottery ticket. Hence, a case decided about a week ago by the United States Court of Appeals for the Ninth Circuit makes sense to us economically, but doesn’t help us with our abiding belief that a deal should be a deal. [Read more…]

Print

Option Rights, Reasonable Expectations, And Traps For The Unwary

Print

A few weeks ago, we included the text of a common lease extension option clause in our blog posting. We didn’t endorse it; we only used it as an illustration. An astute reader pointed out a weakness (from the landlord’s perspective) of what, at first blush, looks like a landlord-friendly aspect of the cited provision. Today, Ruminations is going to disseminate that thought and explore some other related aspects. The general theme will be what happens when it is a condition of the tenant’s lease extension option that it not be in default. So, we’ll start by republishing the lease provision that triggered today’s thoughts: [Read more…]

Print

How Big A Default Was It?

Print

It is pretty common for a lease or other agreement to grant a party (usually the tenant) a particular right or option and then make it conditional on the “entitled” party not being in default or never having been in default. We are “talking” about such provisions that look like the following sample, but we aren’t endorsing its particular formulation. That would be a whole ‘nutter discussion.

Provided that on both the day that Tenant gives its Renewal Notice and on what would have been the Expiration Date had the Lease Term not been extended by the giving of the Renewal Notice: (a) this Lease had not been previously terminated; and (b) Tenant shall not be in default beyond applicable notice and grace periods, Tenant shall have the option to …

In Merry Ole England, the King had a court system that heard and resolved all disputes. Well, not really all disputes, only those that fit into a limited number of “off-the-shelf” cognizable claims (lawyers, think: causes of action). These “pre-packaged” claims, called “writs,” were “designed to enable the English law courts to rapidly process lawsuits.” The writs were highly technical, and even though new ones were regularly issued to create new rights, the system just couldn’t keep up. If a claim couldn’t be fit into an existing “writ,” the aggrieved person was out of luck – “no writ, no remedy.” The law was the law and too bad! [Read more…]

Print

Options: Two Wrong Ways To Write It Right

Print

Weekly, Ruminations looks for a topic. Now, two short of 250 blog postings [who’d a thunk?], finding unique ones is a challenge. Don’t worry, we’ve got a few lined up. But, today, we’re returning to a central theme: the failure to write what you mean. This isn’t theoretical. It that regard, we respectfully disagree with the late, great Judge Benjamin N. Cardozo, in particular when he wrote:

The law has outgrown its primitive stage of formalism when the precise word was the sovereign talisman, and every slip was fatal. It takes a broader view to-day. A promise may be lacking, and yet the whole writing may be “instinct with an obligation,” imperfectly expressed. If that is so, there is a contract. [Wood v. Lucy, Lady Duff-Gordon, 118 N.E. 214 (N.Y. 1917)]. [Read more…]

Print

Notices + Ambiguity: You Can’t Have It Both Ways

Print

We’ve never seen it said this way, but it can’t be an original thought. [After all, there really are very, very few of them.] When it comes to an enforceable agreement (a “contract”), you can’t have it both ways. If you aren’t bound, they aren’t bound. It isn’t an enforceable contract. When it comes to “election” notices, the principle is the same. You can’t have it both ways.

Why did that thought come to us this week? Answer: because two weeks ago we promised to talk about equivocal notices. That led us to ambiguities. To refresh reader’s memories, here’s what we learned constitutes an ambiguity: “Open to more than one interpretation.” That’s not the same as vagueness: “Not clearly or explicitly stated or expressed.” To say this in a different way, when words are vague, they are unclear; when they are ambiguous, each of the two or more meanings will be clear, but it won’t be clear which one was intended. [Read more…]

Print

Oh No, What Have I Done? Not A Right Of First Refusal! Here Are Some Common Headaches, But Only A Handful Of Solutions.

Print

While problems associated with giving or getting Right of First Refusal (ROFR) may vary depending on the subject matter of the right (adjacent space, post-lease expiration renewal, purchase of the underlying property, right to provide financing, etc.), the one problem all have in common is that there is always a mismatch between what the grantee (usually a tenant) would design for itself and what a third party concocts in the form of its own offer.

Let’s give an example based upon a ROFR to lease adjacent space. Assume that a 9,000 square foot tenant has three years to go in its lease term followed by a five year extension option. Conveniently, two adjoining spaces, each measuring 3,000 square feet, become available, one of which is incontestably adjacent to that tenant’s space. [Read more…]

Print

OK, The Deal Will Contain A Right Of First Refusal. How Do You Write That Up?

Print

Why should anyone grant someone else a Right of First Refusal? Here’s an uncharacteristically succinct answer: “because they have no choice.” Yes, make the deal or not.

Granting any option rights always seems like a one-way deal. The optionee (i.e., the one who gets the “right”) isn’t bound to do anything, but the optionor (i.e., the one who gives the right to the other) is “stuck” if the option is exercised. The only reason it isn’t a “one-way deal,” is because the party granting the option right gets the deal by reason of having granted the option right – small comfort, but true. [Read more…]

Print