Preemptive Rights and Wrongs: First-Refusal and First-Offer Rights

Boris, the owner of Mallchester Mall, wants to add a clause to the All Brands USA lease giving them first dibs if the mall is sold. This might not be possible because the store is part of the mall, not a separate building. But Boris really needs the lease signed so he can refinance the mall. He doesn’t care if the refusal right is for the whole mall instead of just the store. A right of first refusal (ROFR) is a right that someone has to match the terms of a purchase offer made by a third party for a property. This right is triggered when the owner of the property receives an offer from someone else and wants to accept it. The person with the right of first refusal gets the chance to buy the property instead. This right can make it harder for the owner to sell the property, and it can cause complications during the sale process. If a tenant has the right to refuse if someone wants to buy the property they’re renting, it can cause problems if they can’t close the purchase when they exercise that right. The tenant might lose out on other potential buyers and tie up the property for a long time. Also, if the tenant can’t afford to buy the property, it might affect the lease they have with the landlord. If the tenant records their refusal right in public records, it could make it hard for the landlord to get financing for the property. And if the landlord has a mortgage, the tenant might be able to buy the property without the mortgage being involved, which could be a big problem for the lender. A right of first offer (ROFO) is a safer option than a right of first refusal. It means that the property owner has to offer the property to a specific person before they can sell it to anyone else. However, there are issues with setting the price for the property. If it’s priced too low, the person with the right of first offer could buy it and sell it for a profit. If it’s priced too high, the property owner will have to offer it again, causing more delays. When offering a property for sale, there are many important factors to consider, not just the price. You need to think about things like a contingency period, financing, and the time it takes to close the sale. If the terms of the sale change a lot, the original owner might need to give the first chance to buy the property to someone else. If the person with the first chance to buy the property, called the rights holder, doesn’t want to buy it, and then the next buyer wants a discount, the original owner might have a problem. If they give a discount and it’s too big, they might have to offer the property to the first buyer again, and they might lose the new buyer. But if they don’t give a discount, the new buyer might not want the property anymore. It’s a tricky situation! Extending the time for the buyer to do their research while you offer the property to someone else might not work out. If the new buyer decides to buy the property and you still have a contract with the first buyer, they might give up their request for a $300,000 credit and stick to the contract. Then you would be in two contracts to sell the property to two different buyers.

Another scenario is if the new buyer decides to buy but then doesn’t go through with it. What happens to their rights to lease or have an interest in the property? Or, what if they do buy but there’s a disagreement about whether they followed the rules for their purchase right?

The way the new buyer exercises their purchase right is important. If they agree to the main terms, is that enough to make a contract? This could lead to legal trouble if they don’t agree on all the terms of the sale.

There are also issues with how the property is titled, especially if the new buyer records their rights. This could cause problems with any current or future mortgages on the property.

Now let’s say your client is a tenant looking to get a preemptive right. They want to protect themselves from the property being sold to a competing business owner. But getting a preemptive right might not fully protect them. All Brands USA wants to buy its store in Mallchester Mall, but the landlord can trigger a purchase option at a bad time for the store. If the offer terms are unclear or if All Brands USA and the landlord don’t agree on the purchase terms, it may be hard for All Brands USA to buy the store. They also may not have enough time to get financing or prepare financially to match a third-party agreement. If they fail to close the purchase for any reason, they could lose their lease. Preemptive rights, also known as rights of first refusal, may not always work in real estate transactions. They can lead to litigation and cause problems for buyers. They are also not absolute and can be defeated in certain situations. It’s best to be cautious when dealing with preemptive rights and consider the potential risks involved. In Florida, there are specific rules and court decisions regarding preemptive rights, but in general, they can be complicated and may not always be effective. It’s important to be aware of these issues when dealing with real estate transactions. If you’re looking to buy something from someone who also promised to give someone else the first chance to buy it, the first person has to be ready and able to pay for it. If they can’t, the seller can sell it to someone else instead. This rule doesn’t stop the seller from making other deals. And it’s considered fair by Florida courts. If you have the right of first refusal (ROFR) on a property, you can buy it before someone else does. To exercise this right, you need to accept the offer without changing any terms. If you add or remove conditions, it doesn’t count. You don’t have to quote the offer exactly, but you have to agree to the important parts. In a specific case, the right of first refusal didn’t apply because the property owners died. This lawyer specializes in real estate law and knows a lot about ROFR. Sandra E. Krumbein is a partner at a law firm in Ft. Lauderdale and specializes in real estate law. She helps with residential and commercial real estate transactions and development. She is also involved in committees for the Real Property, Probate and Trust Law Section of The Florida Bar.

Source: https://www.floridabar.org/the-florida-bar-journal/preemptive-rights-and-wrongs-first-refusal-and-first-offer-rights/