A tenant of real estate often wants the right to purchase the property if the landlord decides to sell. One common technique is to have the landlord grant the tenant a “right of first refusal.” The tenant is granted the first right to purchase the property on the same terms offered by a bona fide purchaser. In other words, the tenant can jump ahead of the other purchaser as long as it matches the terms offered by the other purchaser.
In order for a right of first refusal to be enforceable, those specific words should be used, and the requirements for the tenant to exercise the right of first refusal must be clearly spelled out.
In Gerstenberger Farms, Inc. v Grimes (April 22, 2010), the Michigan Court of Appeals considered the effect of a lease that contained a provision that “[i]f the lessor decides to sell the property, the lessee will be given an opportunity to purchase the property.” The Court of Appeals ruled that this language was not sufficient to create a right of first refusal, because the lease did not contain those words or provide any more specific conditions for the tenant’s right to purchase the property.
The Court of Appeals ruled that the landlord did not breach the lease by selling the property to someone else. The tenant had in fact been given the opportunity to purchase the property before the sale. Several months before the sale, the landlord told the tenant of his plan to sell the property. The tenant replied that he could not afford the landlord’s asking price. Because the tenant had been given the opportunity to purchase the property, the tenant did not have a right of first refusal when the landlord received an offer to purchase the property from a third party.
This article was written by Mark S. Demorest, Managing Member of Demorest Law Firm.
