Disclaimer: This is the situation as I understand it. My friend Mary Lou is not the world’s greatest communicator. I’ve put these details together over several phone calls.
This is my question: can Ernie, Jr. be compelled either to exercise his option to buy the property (at the current offer) OR decline so that the transaction can proceed? What if he just refuses to do either? Read on for details.
Mary Lou is in the process of selling a piece of commercial property that she owns outright. She and her late husband purchased it over 40 years ago.
Ernie had right of first refusal on the property. I don’t know by what mechanism this came to be 40 years ago or for what reason it exists in this particular situation. Ernie is long gone, and Ernie, Jr. now handles his father’s business interests.
Bob & Joe Smith want to buy the property and have made an offer to Mary Lou of $420,000. Mary Lou’s realtor has drawn up the contract and a closing date **was **set for May 16.
Mary Lou offered to sell the property to Ernie, Jr. ages ago, but he wasn’t interested. When he became aware that there was now a contract on the property, he exercised his right to delay the closing for 30 days. The closing is now set for June 16.
So far, Ernie, Jr. has not shown any more interest in buying the property now than he has over the past 40 years, but he also has declined to sign whatever piece of paper he needs to sign to allow the transaction to go ahead.
Mary Lou has a lawyer along with her realtor involved in this transaction. The lawyer has said to her, “Just show up at the closing on June 16. Don’t worry.”
This is my question: can Ernie, Jr. be compelled either to exercise his option to buy the property (at the current offer) OR decline so that the transaction can proceed? What if he just refuses to do either?
IMO her lawyer, far more expert in the subject matter and jurisdiction than I, is correct. Right of first refusal is not right to indefinitely postpone sale. If he refuses to act, the property gets sold.
How does first right of refusal transfer to another person? Isn’t it attached to the person named, not the property or heir? Wouldn’t it list the property instead of the person, in that case?
The right of first refusal has to have been in writing to be valid, and that writing may specify some answers to these questions. If there’s no time period set in the ROFR itself, a court would probably infer that it has to be exercised in a “reasonable” time, and thirty days is likely to be plenty of time.
An ROFR is not necessarily transferable, but it can be. Since everyone is acting like Ernie Jr. validly inherited it from his father, this particular ROFR probably doesn’t have any restrictions on inheritance, but it might be worth clarifying this opint if the matter becomes contentious.
Disclaimer: I am not counsel to anyone in connection with this transaction. This is anonymous chat and not legal advice.
It depends on the manner in which the property descended on Ernie Jr., and the manner in which Ernie Sr. came to hold the right in the first place. The deed will usually specify whether such rights are inherited by the heirs.
I agree with Tom. Absent some good cause for an extension on the right of refusal (e.g. Ernie says he’s getting financing together or something), and the absence of language specifying a longer time period, there’s no reason why Ernie should be able to delay the sale indefinitely.
I do know that the ROFR is in writing and has been since Mary Lou and her husband bought the building 40 years ago. As I said, I don’t know WHY it was included. I don’t know the relationship between them and Ernie Sr. that made them include ROFR to him.
In a recent phone conversation between Mary Lou and Ernie Jr. (which Mary Lou reported to me) Ernie Jr. said the ROFR was “in perpetuity,” using those words.
I’m just getting bits and pieces, and I don’t intend to pass on any of this discussion/these opinions to Mary Lou, as she’s practically having a nervous breakdown now. I’m asking all of this just to satisfy my own curiosity and to anticipate how much booze I might have to take out to her house if Ernie Jr. is able to delay this closing yet again. From what y’all are saying, it looks like he won’t be able to.
I had a “right of first refusal” drawn up recently, regarding a plot of land adjacent to a house I was buying. It was rather simple - specifying that I had to be notified in a certain way if there was an offer, and that I then had a certain amount of time (14 days I think) to respond in a certain way if I wanted to exercise my right, otherwise the sale to a third party could proceed. In other words, pretty much the only issue laid out in the contract was what exactly what you’re concerned about. Have you seen the contract? If not, I assume that your lawyer has?
“First” as in “first in line”. Technically a property owner should contract a “second refusal” right to a third party. If the first passes, then the next one can choose to buy or pass.
It’s not my deal, so I haven’t seen anything. I’m sure Mary Lou’s lawyer has seen all relevant paperwork. As I said above
I think this scenario only kicks in when there is a genuine offer on the table from real buyers. From what I’ve been reading, If Ernie Jr. wants to exercise his right, he has to match the offer that the other buyers have made. Mary Lou would be fine with that–she just wants to sell.
I have had a similar scenario with a in perpetuity rofr that was executed almost 30 years before. The seller forgot completely about the rofr it was only uncovered by the title work of the buyer. Most right of first refusal have language that the matching offer must equal the price and relative terms of the offer on the table and there is often some kind of time issue as well. In in that case the thirty-year-old rofr buyer was obviously trying to interfere with our deal in order to get a payoff to go away that did not happen and the buyer threatened to go after the seller if they did not make the problem go away. In the end the rofr buyer signed an agreement to back out of the deal and terminate their rofr.
It sounds in this case like you have a simpler situation in our case the rofr was capable of buying the property as they were fairly wealthy but the Seller appealed to them not to screw up the deal on the table and because they were past friends the rofr walked away.
In this case the rofr has to perform in a set time period. Unless the rofr can come up with the cash the time limit will simply expire and you can move on to the other deal. I suspect the rofr is delaying the deal to see if there is any go away money in it for them. The main risk here is if he is allowed to keep screwing with the deal the buyers may walk away. Whether or not he has that kind of leverage is entirely a question for her attorney. The smart thing to do is just wait him out and if he does not perform in 30 days move on.
This sounds like EXACTLY what Mary Lou is up against. Ernie Jr. is indeed capable of buying the property. He has already delayed the closing by 30 days-- it was originally May 16 and now it’s June 16 (9 days from now). The buyers have had to wait it out, too.
“in perpetuity” likely refers to the lifetime of the right to first refusal. Meaning it doesn’t expire after X years of Mary Lou owning it. It probably also extends to the new owners.
“in perpetuity” likely does not refer to the ability to block a sale forever. That’s just dumb.
If Ernie doesn’t buy the property, his ROFR is still in place. It’s just with a different owner now. In other words, he hasn’t ‘lost’ anything. He can still buy should the new owners decide to sell.
Of course it doesn’t. The ROFR was with an owner, and does not run with the property like an easement.
And, as a general matter, courts are extremely loathe to enforce any agreement purporting to burden real property “in perpetuity.”
I find it amusing. In so many similar threads, folk offer their opinions, but agree that the person ought to obtain qualified representation. In this case, the party HAS such representation, yet folk are still offering their inexpert advice!
I’ll be checking back on 6/17, to see how it turns out.
