Right of First Refusal
Generally, the Right of First Refusal (“ROFR”) means the right of a person or a company to purchase property before it is made available to others. The general principles in the article relate to both the sale of real property (real estate) and to the sale of businesses. This article will deal specifically with the right of first refusal as it relates to contracts in real property (real estate) and in the sale of businesses.
Right of First Refusal is a contractual right.
In order for a ROFR to be created, there must be a contract between the parties. In Virginia, the Virginia Supreme Court has held that a right of first refusal must be interpreted to the benefit of the person who is given the right. Landa v. Century 21 Simmons & Co., 237 Va. 374 (1989). Another point to remember, is that a court will typically construe a contract against the drafter (party who wrote the contract). If a contract is vague and the terms of the ROFR are difficult to determine from the face of the contract, the court may allow extrinsic evidence as to the dealings between the parties. This extrinsic evidence could include communications between the parties which will help the court determine whether there was a “meeting of the minds” at the time of contract.
What does a Right of First Refusal require the owner to do?
The ROFR requires the owner, when and if he decides to sell, to offer the property first to the person entitled to the right of first refusal. Cities Service v. Estes, 208 Va. 44 (1967). The term “first”…has special significance in this area of law because it suggests that when the seller decides to sell, it will be to the person to whom he has said he would turn “first”. Landa, 237 Va. 374 (1989). Simply stated, if the parties have contracted for a ROFR, the owner cannot accept an offer from a third party without first offering it to the holder of the right of refusal on the same terms. If he does not do this, the owner is in breach. Of course, this is where a great deal of legal wrangling takes place and parties will fight over the nature and terms of the offer. Parties will fight over how much notice is required and what the terms will be.
Where a ROFR is involved, when an owner receives an offer the owner cannot accept that offer without first offering it to the holder of the right of refusal “on the same terms.” Corbin, Corbin on Contracts § 261A (1963) (Corbin). Much of the analysis is dependent upon the express terms used in the contract. It is universally recognized that the holder of a right of first refusal cannot be compelled to purchase more property than is subject to the right of first refusal or else forfeit its first refusal rights. Pantry Pride Enterprises v. Stop & Shop Companies, 630 F.Supp. 637, 639 (E.D.Va.1986).
If you are the owner of the property, you should consult with an attorney prior to making the offer to the holder of the ROFR. If you have the contractual ROFR, and you feel you were not given a chance to exercise your right, you should consult with an attorney. Every case presents specific facts, and the attorney will have to look at any proposed offer and scrutinize the original contract between the parties. Of course, many of these disputes can be more easily avoided when each party consults with an attorney and has clear direction. You want to avoid any ambiguity in the contract which would allow the other party any wiggle room.
Right of First Refusal | Contract Law | Richmond, Virginia